BTC has retreated nearly 4,000 points from its highest point of 44,700 in the past few days. Once the recent craze has passed and the decline has begun, everyone is now like a frightened bird!
Everyone is paying close attention to the Federal Reserve interest rate meeting at 3 a.m. the day before yesterday and Powell’s speech at 3:30 a.m. If there is bad news, the shaky market is bound to fall below the important psychological support point of 40,000. The CME gap of 38,500 is likely to be filled!
Bitcoin price continues to trade below the 2023 high, suggesting that investors may be underestimating the strength of the $44,000 resistance level. Even if BTC price is below $42,000, it does not necessarily mean that $50,000 and above is no longer possible. In fact, the exact opposite seems more likely. Judging by Bitcoin derivatives indicators, traders are clearly ignoring the 6.9% drop and remaining optimistic. However, is this optimism enough to justify further gains?
On December 11, leveraged long Bitcoin futures liquidations reached $127 million, which may seem significant in absolute terms, but it represents less than 1% of total open interest (the value of all open contracts). Still, it is undeniable that the liquidation engine triggered a 7% pullback in less than 20 minutes.
Derivatives accelerated Bitcoin’s crash, at least in the short term
On the one hand, one could argue that derivatives markets played a crucial role in the recent negative price movement. However, this analysis ignores the fact that after hitting a low of $40,200 on December 11, Bitcoin price rose 4.2% in the next 6 trading hours. Essentially, the impact of the forced liquidation orders had long since dissipated, disproving the idea that the futures market crash was entirely driven by them.
To determine if Bitcoin whales and market makers are still bullish, traders should check the Bitcoin futures premium, also known as the basis rate. Professional traders prefer monthly contracts due to the fixed funding rate. In a neutral market, these instruments trade at a premium of 5% to 10% to account for their longer settlement period.
These institutions, represented by BlackRock, have fully adjusted their strategies. In order to alleviate the concerns of the SEC, BlackRock and other institutions have proposed surveillance-sharing agreements, which is a way to mitigate the risks of market manipulation and fraud. The surveillance-sharing agreement is an agreement between cryptocurrency exchanges and market regulators that allows both parties to share transaction data and information to monitor transactions. If suspicious transaction data or information appears, this information will be pushed to regulators, ETF issuers and cryptocurrency exchanges at the same time. Both BlackRock and Ark Invest have chosen Coinbase Custody Trust Company as their Bitcoin custodian and Bank of New York Mellon as their cash custodian.
In the past, the SEC usually does not approve Bitcoin spot ETFs in advance, and chooses to announce the results on the final approval date. The closest to the final approval date is the ARK 21Shares Bitcoin ETF applied by Ark Invest, which will give the result on January 10, 2024. The final approval date for BlackRock and several other institutions is March 15, 2024. According to Reuters, citing sources, the discussions between the SEC and asset management institutions applying for Bitcoin spot ETFs have gone deep into key technical details, including regulatory arrangements, subscription and redemption mechanisms. This suggests that the SEC may approve these products soon. We may see the Bitcoin spot ETF pass as early as January 10 next year.
Market Impact of Bitcoin Spot ETF
Taking the gold spot ETF as an example, on March 28, 2003, the first gold spot ETF, ETFS Physical Gold, was approved in Australia. Later, on November 18, 2004, the world's largest gold spot ETF, SPDR Gold Trust, was approved in the United States. This has a huge impact on the global gold market. In the following ten years, the price of gold rose from US$332 per ounce to US$1,600 per ounce. It is disclosed that the cryptocurrency exchange Binance currently holds the largest amount of ORDI tokens, with at least 38.4% of ORDI, which is also the current largest holding address; followed by OKX, which also owns at least 12.2% of ORDI. The total holdings of other exchanges, including Gate, Bybit, MEXC and other second-tier exchanges, are about 10%. (It should be noted that due to the lack of labels in the Bitcoin network, some addresses may be uncertain)
Such data is quite healthy considering that the price of Bitcoin has surged 52% since October. It suggests that excessive retail leveraged longs are not driving the stock market rally and subsequent liquidations.
Whatever caused the rally to $44,700 and the subsequent pullback to the current $41,300 level, it appears to have been driven primarily by the spot market. This does not necessarily mean a bottom has been reached, but it significantly reduces the likelihood of cascading liquidations due to overly optimistic expectations for spot exchange-traded fund (ETF) approval.
Essentially, this is good news for Bitcoin bulls as derivatives suggest that despite the price correction, the positive momentum has not faded.
