Bitcoin experienced a 6.8% drop in price between January 11th and January 12th, confirming the theory that a sell-the-news event would occur after the approval of a spot Bitcoin exchange-traded fund (ETF). This event was highly anticipated following a 75% rally in the 90 days leading up to the initial trading on January 11th. As a result, there was a lack of excitement and the price corrected down to $43,180.
Traders are now questioning whether investors are becoming bearish after multiple failed attempts to break above $47,000 in the past week. On one hand, there is some rationale behind this fear. Market makers and whales who tried to buy ahead of the spot ETF launch may now be forced to sell at a loss. Additionally, Bitcoin miners might feel pressured to sell some of their holdings as the halving is less than 100 days away.
Regardless of how profitable a Bitcoin mining operation is, a 50% cut in the block subsidy will significantly affect margins. Recent data shows that miners’ outflow hit a six-year high, with $1 billion worth of BTC being sent to exchanges.
However, it’s important to note that previous peaks in BTC transfers from miners have coincided with price bottoms in the past. This data could instill confidence in bullish traders, although it could also be a coincidence. There is no rationale for a relationship between Bitcoin miners’ net flows and short-term BTC price. The same chart also shows multiple instances of large transfers with no meaningful price impact.
To determine whether traders are turning bearish, it is necessary to analyze Bitcoin derivatives. The aggregate futures open interest has increased by 14% since January 5th, indicating that investors’ interest in leverage positions remains strong. The CME is the leader in this market with a 30% market share.
Analyzing retail traders’ use of leverage can also provide insight into market sentiment. The BTC futures funding rate has stabilized at 0.2% per week since January 4th, indicating balanced demand for leverage between long and short positions. This suggests that the recent sell-off was not caused by retail traders using excessive leverage, and investors are not betting on a price decline.
Another way to gauge market sentiment is by measuring the activity in call and put options. A put-to-call ratio of 0.70 indicates a bullish sentiment, while a ratio of 1.40 favors put options and indicates a bearish sentiment. The put-to-call ratio for Bitcoin options volume has remained between 0.35 and 0.65 in the past seven days, reflecting lower demand for put options and suggesting that investors are not fearing a potential price crash.
Part of Bitcoin’s dip on January 12th can be attributed to the lack of information on how the spot ETF works in terms of creation, redemption, and price formation. There are slight differences between issuers, which can cause lag in the inflow data. Traders have also become skeptical due to multiple false ETF approval alerts and the fear, uncertainty, and doubt caused by some brokers not allowing clients to invest in the sector.
Additionally, the uncertainty surrounding how spot Bitcoin ETFs will open after weekend pauses and the potential volatility outside regular market hours has contributed to panic selling. Traders who lack information and understanding of the ETF impact may choose to sell to avoid negative surprises, further fueling the fear, uncertainty, and doubt behind the recent price correction.
It is important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research before making any investment or trading decisions.