Bitcoin (BTC) starts the fourth week of January in a precarious state as doubts surface over the cryptocurrency bull market.
BTC price action continues to struggle after hitting two-year highs — bulls are on the back seat, and $40,000 support is looming ever closer.
What could be in store next?
With the drama around the launch of the United States first spot Bitcoin exchange-traded funds (ETFs) now gone, analysts are asking themselves that question first and foremost.
Potential catalysts for volatility are lining up in the weeks and months ahead — but their impact on Bitcoin itself is the real area of interest.
That said, the coming week marks something of a “calm before the storm” — macroeconomic shifts come in the form of the Federal Reserve interest rate decision on Jan. 31, while the final countdown to Bitcoin’s next block subsidy halving has yet to commence.
The battle for BTC price support is nonetheless raging, with BTC/USD already down nearly 20% versus the highs.
Cointelegraph takes a closer look at the current landscape with insights from popular market participants into where Bitcoin might be headed.
Bitcoin traders eye sub-$40,000 levels for longs
A final push higher brought $41,700 back into play, but this failed to stick as downside totaling $1,000 preceded the close.
At the time of writing, BTC/USD is attempting to hold the $41,000 mark.
Analyzing the situation overnight, popular trader Skew noted bid support at $40,500 and below — liquidity which ultimately buoyed the market.
“Bid depth thickens a lot beneath those as well ~ strong demand for BTC,” part of commentary on X (formerly Twitter) read.
An accompanying chart showed BTC/USDT order book liquidity for largest global exchange Binance.
A breakdown through $40,000 is nonetheless on the cards for various traders at present. As bid interest likewise stacks up above $35,000, that area is becoming a popular choice for potential long BTC positions.
— Crypto Chase (@Crypto_Chase) January 22, 2024
— Crypto Tony (@CryptoTony__) January 22, 2024
Others noted the significance of the current BTC price zone, with Skew calling it “pretty important on a 12H/1D close basis.”
“Bitcoin is testing the $40,000 – $41,200 area again that has been tested multiple times the past 2 months,” trading suite Decentrader continued on the day.
Decentrader noted that one of its proprietary trading tools composed of a basket of popular indicators is now turning bullish.
“Will this area continue to hold up price?” it queried.
GDP, PCE lead pre-Fed macro week
The coming week sees some key U.S. macroeconomic data prints within the Fed blackout period.
Their impact may thus be limited when it comes to what the Federal Open Market Committee, or FOMC, decides to do with interest rates at its upcoming meeting on Jan. 31.
Preliminary Q4 GDP is due, while Jan. 26 will see the Personal Consumption Expenditures (PCE) Index for December — known to be the Fed’s preferred inflation gauge.
The status quo regarding inflation is mixed — stocks are pushing all-time highs and markets are eager to bet on rate cuts, but recent data prints have seen price rises outpacing expectations.
“Just as stocks push into record high territory, we have tons of important events into February,” trading resource The Kobeissi Letter wrote in part of its weekly diary summary.
Key Events This Week:
1. Manufacturing PMI data – Wednesday
2. Core Durable Goods Orders – Thursday
3. Q4 2023 GDP data – Thursday
4. New Home Sales data – Thursday
5. December PCE Inflation data – Friday
6. ~20% of S&P 500 companies report earnings
We are 1 week out…
— The Kobeissi Letter (@KobeissiLetter) January 21, 2024
According to data from CME Group’s FedWatch Tool, the odds of rates remaining the same next week stand at an almost unanimous 97.4% — there is barely any consensus, it appears, for curveballs from the Fed.
Concentrating on Bitcoin, however, the growing contrast between BTC price action and equities is becoming hard to ignore.
For Arthur Hayes, former CEO of derivatives giant BitMEX, the writing is on the wall. Crypto markets need the return of global liquidity — one result of loosening economic policy — to thrive, and with this possibly in question, the party itself is stalling.
“Y has $SPX and $BTC stopped moving up together post US BTC ETF launch?” he queried alongside a comparative chart of BTC/USD versus the S&P 500.
“Both are love more $ liq, which one is right about the future? $BTC is telling us that there are hiccups ahead for $ liq, next signpost is 31st Jan US Treasury refunding annc.”
Hayes referenced another key event alongside FOMC which will point the way for U.S. liquidity conditions going forward.
Scaramucci sees ETF buying delay
While BTC price strength has failed to mimic the bullish narrative popular before the ETF launch, longtime market participants demand patience.
As Cointelegraph reported, the nuances of market post-launch shifts mean that sell-side pressure was a given from day one of trading on Jan. 11.
At the center of the reshuffle is the Grayscale Bitcoin Trust (GBTC), now itself an ETF, which is seeing investors cash out now that its share price practically matches the Bitcoin spot price.
Data from statistics resource Bitcoin Treasuries confirms that GBTC’s holdings have declined sharply this month — by almost 100,000 BTC.
GBTC investors are seeking to rotate into other ETF products with more advantageous terms. In an interview with Yahoo! Finance at the World Economic Forum in Davos, Switzerland, last week, Anthony Scaramucci, managing partner and founder at SkyBridge Capital, said that regulations around this were likely to slow ETF inflows.
“You have lots of investors that went into Grayscale Bitcoin Trust at 2% — they bought the Bitcoin at $50,000, $60,000, $69,000 — and so when the ETF became available, they were able to sell the Grayscale Bitcoin Trust and take a loss for tax purposes,” he explained.
Scaramucci referenced the 30-day cooling-off period after selling before investors can reenter the same product, providing a “great arbitrage” opportunity.
“Could be step-up in buying in 30 days post sale,” Adam Back, CEO of Bitcoin technology firm Blockstream, responded.
Back, known for his bullish outlook on Bitcoin under current circumstances, had already referenced the scale of the ETF inflows and its significance for the market.
These, he said on the day, were 30 times larger than the supply impact of each halving event.
“And a lot of tradfi led by broker sentiment are momentum buyers: price goes up due to smart-money, they say buy, creates news, they buy more etc.,” he wrote in part of X debates at the weekend.
Data: Bitcoin profit-taking began in late 2023
Bitcoin is seeing one of the most protracted periods of profit-taking in its history — even with prices well below all-time highs.
Data from on-chain analytics firm Glassnode uploaded to X by James Van Straten, research and data analyst at crypto insights firm CryptoSlate, reveals a solid three months of profit-taking.
“This was eclipsed by the 2021 bull run from September 2020, which ended in February 2021 (155 days),” he commented.
‘I think this trend may be ending soon, the longer Bitcoin stays around $40,000.”
The data feeds the idea that current buy and sell dynamics may be something of a knee-jerk reaction to the ETF launch.
As Cointelegraph reported, that event triggered a sell-off from $49,000, which saw mass market exits from short-term holders selling BTC at a loss.
Whales in focus as distribution takes hold
Crypto is still greedy, even at nearly 20% below the post-ETF top.
That is the conclusion from sentiment gauge, the Crypto Fear & Greed Index, which shows that the average crypto investor is not feeling the fear when it comes to market dynamics.
As of Jan. 21, Fear & Greed measured 55/100 — still within its “greed” bracket, after almost dipping into “neutral” territory.
Jan. 11 saw highs of 76/100 — not “extreme” by the metric’s standards, yet still equivalent to the mood when BTC/USD hit its current all-time highs in November 2021.
The numbers coincide with changes among Bitcoin investor cohort exposure.
As noted by popular crypto educator Wise Advice, whales are selling off, and other larger entities have also reduced their holdings.
“They currently hold their lowest amount since June 2023, which indicates selling or distribution,” he told X subscribers about wallets with between 10 BTC and 10,000 BTC.
Accompanying data from research firm Santiment anticipated the return of accumulation among whales.
Earlier, Cointelegraph reported on a theory which suggests one giant holder from the 2021 bull market may have precipitated distribution trends.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.