3 Reasons Bitcoin Is Struggling To Collect Above $28.5K
On October 2, the price of Bitcoin (BTC) increased by 5.5% during the day to $28,600, but the largest cryptocurrency by market capitalization lost momentum as the highly anticipated Ether (ETH) futures exchange-traded funds (ETFs) failed. Generates significant transaction volumes.
While the rally at the upper end of the current price range is encouraging for investors, recent comments from US Federal Reserve officials have reiterated their concerns about an imminent recession.
Bitcoin showed short-term strength by maintaining support at $27,200 on October 3 and then rallied above $27,500 on October 5. However, three key marketing metrics indicate a low level of support. These metrics include spot market volumes, derivatives, and confidence in spot Bitcoin ETF approval.
Macroeconomic forces put downward pressure on the price of Bitcoin
On October 2, US Federal Reserve Vice Chairman Michael Barr said in New York that he expects a “below” slowdown in economic growth, which will limit economic activity due to high interest rates. He also pointed out that the current monetary policy is not fully implemented. According to CME's FedWatch tool, the market is evenly split on the likelihood of another rate hike by the Fed in 2023.
On October 3, the real yield on US 10-year Treasurys, a measure that adjusts for inflation, reached 2.47% – the highest level in 15 years – according to data from the US Treasury Department. This development partly explains why the US dollar index (DXY) reached its highest level in 10 months.
The US also has stronger growth prospects than Europe and China, making it a relatively more attractive investment destination due to its “resilient economy,” according to Reuters.
Bitcoin trading indicators show a long-term slowdown in growth
Bitcoin monthly futures trade at a small premium to separate markets, indicating that sellers are asking for more money to delay settlement. As a result, BTC futures contracts typically trade at a 5%–10% annual premium – a phenomenon known as contango, which is not unique to crypto markets.
BTC futures premium continues to trade below the 5% neutral threshold, remaining in the neutral to bearish range. This indicates that there is no need for long-term positions.
In addition, spot trading activity on traditional exchanges has declined to near-zero levels since late 2020, driven by reduced participation from institutional investors.
It is worth noting that the decrease in trading volume could be due to major US trading firms such as Jane Street Group and Jump Trading distancing themselves from crypto markets before May 2023. Bloomberg reports that this is the main reason for this change. “Intensified regulatory oversight,” which made the market less attractive to institutional investors.
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Investors' expectations for the spot BTC ETF will decrease
In the year One of the factors supporting Bitcoin's 68% gain in 2023 is the expectation of a Bitcoin ETF designation by the US Securities and Exchange Commission. However, despite the regulator's many extensions, the recent launch of Ether futures ETFs on October 2nd has seen a lot of interest.
Additionally, despite a court ruling to convert the Grayscale Bitcoin Trust into a spot Bitcoin ETF, it continues to trade at a 19% discount to its Bitcoin holdings. This information shows lack of confidence in the approval of Bitcoin ETF as investors will have the option to redeem their shares at a reasonable price following the exchange.
Finally, Bitcoin failed to pass the resistance level of $28,500, and representatives of the Federal Reserve warned of the coming economic pressure. Therefore, the odds of breaking above this resistance in the short term are less than favorable.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.
