Bitfinex Alpha | More Pull-Backs Possible Even as BTC Markets Deepen, Widen and Diversify

22 Jan Bitfinex Alpha | More Pull-Backs Possible Even as BTC Markets Deepen, Widen and Diversify

With the sharp fall seen in Bitcoin at the end of last week, there has been a significant decline in unrealised profits, particularly among short-term holders. We believe this could contribute to a potential increase in selling pressure,  particularly among recent buyers. 

The tendency of this cohort to react more acutely to short-term market fluctuations could intensify selling, and we anticipate the possibility of a further substantial market correction, with critical support levels for Bitcoin only at $38,000 and $36,000. These levels, closely aligned with the short-term holder realised price discussed in last week’s Bitfinex Alpha, are pivotal in gauging Bitcoin’s short-term market stability and investor sentiment.

On the macro front, December saw a surprising surge in retail sales driven by robust motor vehicle purchases and a significant rise in online shopping. This strong retail activity, coupled with higher-than-expected consumer sentiment, hints at an upside risk to inflation, which is causing markets to reconsider how certain a rate cut could be. We still believe policy loosening is likely, but it is important to watch the data. 

Concurrently, the manufacturing sector, accounting for 10.3 percent of the economy, saw only a marginal boost in production as it continues to grapple with the constraints imposed by the tight monetary policy in place since March 2022. The New York Fed’s Empire State survey from early January further underscored this trend, revealing a deepening slowdown in factory activity. 

The manufacturing industry remains cautiously hopeful that conditions will improve, and adding to the economic narrative, January’s decline in unemployment benefit claims to a 16-month low highlights the labour market’s enduring strength. But more data is key to forming a firmer prognosis of the economic outlook.

In the latest news from the crypto-sphere, South Korea’s government has signalled a potential greater openness to approving domestic spot Bitcoin ETFs, following the successful launches of the same product in the US earlier this month. Indeed, in the two weeks since 10 spot BTC ETFs were launched in the US, their popularity has meant that they have now surpassed Silver ETFs in terms of assets under management. This milestone not only underscores Bitcoin’s increasing market acceptance but also reflects a paradigm shift in investment preferences.

The past week has seen further potential deepening and diversification of the Bitcoin ETF market, with ProShares, the original issuer of Bitcoin ETFs tied to BTC futures markets, filing for five new ETFs tied to leveraged and inverse BTC options. The increasing range of ways to gain exposure to Bitcoin is extremely healthy for the underlying market.

We are now in a market that is more sophisticated, more liquid and arguably more mature than just a few months ago. Even as the new Grayscale ETF saw outflows as investors looked to exit the previous closed end BTC trust that Grayscale had converted to move to cheaper investing options, it is further evidence of the market spreading its risk and growing its size. That said, Grayscale maintains a formidable presence in the market, holding over half a million Bitcoins. This considerable holding underscores the company’s potential to influence the broader market, a factor that becomes increasingly critical if the current rate of outflows continues.

Happy Trading!