The current Bitcoin price stands at $27,400. On October 5, it briefly surpassed $28,000 before retracing. Despite this price fluctuation, investors haven’t entirely given up hope. So, what are the reasons preventing Bitcoin’s price from maintaining its upward trajectory?
“Why Cryptocurrency Prices Aren’t on the Rise?”
At the start of the week, Bitcoin (BTC) reached $28,600, marking a significant 5% gain. However, when the Ether Futures ETF debuted with a surprisingly low $2 million in trading volume on its launch day, market sentiment quickly shifted. This incident highlighted the market’s cautious risk appetite. Now, investors are beginning to wonder if a similar scenario might unfold if the Bitcoin ETF gets approval.
Three primary factors contribute to the challenges in price recovery.
Macroeconomy
On October 2, Barr, a member of the Federal Reserve, expressed his anticipation of an economic slowdown attributed to elevated interest rates. He underscored that the full impact of the current policy shift had not yet been realized.
In the wake of statements from various other Federal Reserve members, expectations for a more modest interest rate hike on November 1 gained substantial momentum. On October 3, the real yield of US 10-year Treasury bonds, adjusted for inflation, surged to its highest point in approximately 15 years, reaching 2.47%. This development subsequently propelled the US Dollar Index (DXY) to its highest level in a decade.
Volumes
Typically, monthly Bitcoin futures contracts trade at a slight premium compared to spot markets. This premium suggests that sellers require additional compensation for delaying settlement. Consequently, BTC futures contracts often maintain an annual premium ranging from 5% to 10%. This market condition is also observed in other markets and is referred to as “contango.”
Currently, the BTC futures premium remains below the neutral threshold of 5% and is moving in a downward trend. This trend signifies a diminished demand within the futures market.
Conversely, trading volumes in the spot market have decreased to levels last seen in 2020. Prominent US-based market makers such as Jane Street Group and Jump Trading began their exit from the market before May, contributing to the contraction in trading volumes. A glance at the monthly chart and a close examination of the volume metrics unmistakably reveal this trend.
Market makers have officially cited regulatory uncertainty as the reason for their withdrawal from the market. However, persistent rumors regarding Jump’s involvement in questionable dealings have circulated on social media for an extended period.
Spot Bitcoin ETF
One of the factors contributing to Bitcoin’s 68% gain in 2023 was the widespread anticipation of the approval of a spot Bitcoin ETF by the US Securities and Exchange Commission. However, given the recent delays, the prevailing sentiment suggests that the approval of a spot ETF for Bitcoin may not materialize in 2023.
On a different note, the volumes of Ethereum ETFs turned out to be underwhelming on Monday. From a broader perspective, this indifference might persist even if a Spot BTC ETF gets the green light.
Additionally, despite a favorable court ruling for the conversion of Grayscale Bitcoin Trust into a spot Bitcoin ETF, a negative premium of 19% persists. If investors were optimistic about the GBTC conversion, they would likely swiftly invest to neutralize the negative premium, recognizing the potential gain exceeding 19% with the conversion.
October 10 marks the deadline for the SEC to appeal the GBTC decision, and thus far, they have refrained from doing so, stating that they are still evaluating the decision. Unless they find another reason to oppose it, they may ultimately approve the conversion.
In summary, due to these short-term adverse factors, it may be challenging for the Bitcoin price to maintain itself above the $28,500 resistance level.
Should the Federal Reserve perceive potential economic disruptions in the near future and initiate an early easing of policies, and if the SEC becomes less stringent, while market confidence is restored, institutional and individual investors might return, possibly signaling the conclusion of the painful bear markets. Unfortunately, at present, this remains the prevailing situation.