The spot Bitcoin ETF approval sell-off: what's next for BTC's price?
The price of Bitcoin (BTC) took a beating this week when the highly anticipated approval of a spot exchange-traded fund (ETF) turned into a "sell-the-news" event. The United States Securities and Exchange Commission (SEC) granted approval to several Bitcoin ETFs on 10 January, prompting a sell-off as investors took profit and sparking discussions about potential market reactions in the upcoming weeks.
Bitcoin's price experienced a surge to $49,000 in the hours immediately following the SEC's announcement. However, it subsequently dipped and is currently trading at around $42,000 as of the time of writing on 15 January. As BTC continues to undergo rapid fluctuations, observers lack consensus about its future trajectory, particularly with Bitcoin's halving scheduled for April.
Selling the news
The term 'sell the news' is a widely recognised phenomenon in capital markets, illustrating how asset prices, leverage, and sentiment build up to a positive event, only to see prices decline shortly thereafter as traders take the opportunity to sell off assets for profit during the bullish swing.
The approval of spot bitcoin ETFs in the US had been highly anticipated and well factored into the market, making the event likely a short- to mid-term peak for the price. BTC's brief surge to over $49,000 as the first-ever spot Bitcoin ETFs began trading in the US last Thursday represented a two-year high for the original cryptocurrency, triggering short-term selling pressures from profit-taking. However, market indicators still point to long-term health for Bitcoin following this singular event.
Traders that aimed for a 'sell-the-news' strategy will be enjoying the return on their investment. Sadly, the opposite will be true for others who 'panic sold' their BTC when the downturn began, with some selling for less than what they paid for the asset. However, many Bitcoin enthusiasts are long-term hodlers, accumulating the cryptocurrency with a game plan that spans years, even decades. For these investors, the spot ETF event will simply be a speed bump on a longer road as they look forward to the halving event and further institutional adoption of digital assets.
A release of the tension and churn of short-term gambles on the spot ETF hype was bound to result in some correction. But overall, Bitcoin remains a strong asset, having grown by over 150% in 2023.
Long-term impact of spot Bitcoin ETFs
Despite short-term fluctuations, long-term expectations for Bitcoin remain predominantly bullish, driven by the evident demand for ETFs among institutional players, as indicated by trading volumes. Bitcoin ETFs will be transformative for the industry, bringing in new investments from various traditional sources such as trusts, hedge funds, insurance companies, and others. J.P. Morgan has already confirmed significant inflows of capital from futures-based ETFs and Grayscale Bitcoin Futures Trust to the relatively cheaper and more accessible spot ETFs.
While spot ETFs are an important milestone in the mainstreaming of cryptocurrency, the established crypto community, which grew up on a philosophy of radical individualism and the rebellious status of financial outsiders, might still prefer self-custody over trusting an ETF to manage their crypto funds. After all, ETF fees may not compare favourably to simply using a crypto exchange for trading.
Bitcoin bulls vs bears: trading indicators
A fierce battle is underway between the bulls and bears over the support level for BTC prices, with buyers failing to initiate a substantial recovery in the face of sustained pressure from the bears.
The 20-day exponential moving average, or 20-EMA ($43,933), has started to trend downward, and the relative strength index (RSI) is trending negative, suggesting a resurgence in bearish efforts. If BTC/USDT drops to below $42,000, selling momentum could intensify, leading the pair to decline to as low as $40,000. Bulls need to push the price above the 20-EMA to counter the downside, opening the path for a rally towards $44,700, a crucial overhead resistance that bulls must overcome to assert dominance.
The future of BTC: halving, interest rates, and more
To look at the future of Bitcoin prices, it is necessary to consider a range of factors. For example, US treasury yields and a positive outlook for early rate cuts by the Fed may work together to constrain the downside risk for BTC.
With just a fortnight left until the upcoming Federal Reserve meeting to determine potential changes in interest rates, the status of inflation remains to be determined. The past week's Consumer Price Index (CPI) figures revealed higher-than-anticipated price increases during December 2023. Even though prevailing market sentiment doesn't anticipate a rate reduction by the Fed this month, this indicates that the Fed may intervene with successive rate cuts from March onwards, creating a favourable environment for so-called 'risk assets', including cryptocurrencies.
Bitcoin's upcoming halving event, i.e., when the rewards for miners will be cut in half, has historically driven substantial price increases as supply decreases relative to demand. The next halving is scheduled for April 2024, although the exact date has not yet been determined. Analysts' opinions differ on the impact of the halving combined with that of institutional buy-in to spot ETFs, with predictions for mid-2024 ranging from between $50,000 to $100,000.
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