Bitcoin’s price fluctuation dominated the past week as the crypto and equities markets reacted to new US economic data and a sudden increase in Treasury yields, resulting in a sharp correction in BTC price, as well as the DOW and S&P 500.
Looking beyond traditional finance markets, Bitcoin’s rally above $102,500 on January 6th led technical traders to believe that the bearish head-and-shoulders pattern had been invalidated and the possibility of a dip below $90,000 had been avoided. The rising Treasury yields had a negative impact on the markets, and rumors of the US Department of Justice receiving court approval to sell $6.5 billion worth of Bitcoin seized from Silk Road further added to the bearish sentiment.
Options trader Tony Stewart tweeted his view on how intelligent traders would react to the news, stating that bears would push the narrative lower until momentum repels.
Among crypto traders, there is a unique strategy to interpret sentiment data and pending bearish events to one’s advantage. On January 9th, a national day of mourning for former US President Jimmy Carter, all traditional finance markets were closed, which reduced volumes and allowed some traders to capitalize on smaller flows. Bitcoin was already weak, creating an opportunity for traders to push prices lower while possibly buying spot coins elsewhere. The news about the DOJ and Silk Road Bitcoin liquidation approval amplified the bearish narrative, providing an opportunity to reposition in derivatives markets and capture discounted spot Bitcoin before the expected rally when President-elect Trump is inaugurated on January 20th.
Cointelegraph spoke to Brian Russ, the chief investment officer of 1971 Capital, to understand how he and his firm were digesting the news and price action. Russ stated that it is difficult to define the exact path due to various factors and the presence of many large global players in the market. He also mentioned that derivatives dominate daily flows for BTC, making it harder to manipulate the market compared to the previous cycle.
Regarding the trading volumes of TradFi-linked Bitcoin on January 6th, Russ explained that ETFs represent only about 3% of the daily average volume, so the closure of markets on that day did not have a significant impact. He also mentioned that the Silk Road Bitcoin, worth $6.5 billion, could be significant if sold all at once, but the market likely priced in those sales already.
Considering the potential for speculators to exploit light liquidity zones and bearish news headlines, Russ believes that large speculators will opportunistically move prices around key stop and leverage levels, leading to increased volatility. Traders should be prepared for short dips and set limits accordingly.
Traders generally agree that bearish crypto headlines tend to have a greater impact on price than the actual event, as markets tend to price in events once the shock of the news headline wears off. Traders use strategies like buying the dip when the DOJ coins move to Coinbase Prime, as the coins are likely already sold and just being moved.
This article does not provide investment advice or recommendations. Readers should conduct their own research before making any investment or trading decisions.