Will the price of bitcoin exceed $46k before spot BTC ETF approval?
A 9.6% internal Bitcoin (BTC) price correction on January 3rd sent the price down to $40,940 and caused chaos and heavy losses for representative traders. This was on top of $137 million in long-term liquidity, the highest in four months.
Fortunately for the bulls, the price of Bitcoin recovered somewhat quickly and is currently trading above $44,000. This raised the question of whether the price of BTC could reach $46,000 before the upcoming SEC decision on the many pending Bitcoin exchange-traded fund (ETF) applications.
The US government debt trend favors riskier assets, including Bitcoin
Rising U.S. government debt and expected interest rate cuts by the U.S. Federal Reserve provide a bullish environment for risk-averse markets, including cryptocurrencies. Minutes from the latest Federal Open Market Committee meeting, released on January 4, reinforced expectations of a quarter-point cut this year. In particular, US government debt has exceeded $1 trillion a year, according to Bloomberg.
Rising debt and political unrest in the US have led to a downgrade in the country's credit rating. Fitch raised its sovereign debt rating from AAA to AA+ in August 2023, and Moody's warned of a possible downgrade from the remaining AAA rating. House Republicans aim to cut spending below levels agreed to in June's debt ceiling deal, while Senate Democrats oppose such cuts amid the threat of a government shutdown.
Investors are pushing up the value of more US government debt and the loss of purchasing power of the dollar. This trend affects other currencies as central banks follow the Fed's lead and keep interest rates high, which stifles economic growth. However, if the monetary authority starts to achieve the 2% inflation target before lowering interest rates, the US deficit cannot be sustainable.
Bitcoin futures are showing resistance after the January 3rd price crash
After the January 3 crash, BTC derivatives markets should be analyzed to see if Bitcoin price gains can continue and break above the $46,000 resistance.
It should be noted that the $137 million liquidation on January 3 did not dampen the bulls. For starters, BTC futures open interest remains at $18.5 billion, which means less than 1% of contracts have been affected by the recent price collapse. Additionally, the data remains consistent with the previous month, downplaying the significance of recent price changes.
After the spectacular rally, professional traders should analyze BTC derivatives parameters to understand their position. Bitcoin monthly futures have a 5%–10% annual premium compared to spot markets, indicating that sellers are demanding more money to extend settlement.
The current Bitcoin futures premium stands at 18%, unchanged from last week. The unusual feature was the exaggerated 31% peak on January 2nd. Traders showed overconfidence in ETF approval prospects before January 10, based on excessive leverage, which ultimately exposed them to liquidity during price volatility.
Bitcoin options leave room for surprise on spot ETF approval issue.
One needs to examine the Bitcoin options markets to assess whether the dip below $41,000 has ended bullish expectations. When Bitcoin's price decline is expected, the delta's 25% skew tends to increase by more than 7%. In contrast, bullish periods typically see delta volatility less than 7% negative.
Related: No Crystal Ball – Unseen Crypto Price Predictions in 2023
Note how Bitcoin options changed during the recent decline on January 3rd, which shows that pro traders are not hurt and are not in a rush for defensive options. If these traders had anticipated negative or delayed ETF decisions, the 25% bias indicator would have changed accordingly.
Seasoned traders seem unaffected by price swings and are used to FOMO (fear of missing out) and FUD (fear, uncertainty and doubt) around significant events like ETF approvals. However, this does not guarantee a bull run above $46,000 before the SEC decision, especially since investors had ample time to stock up and strategize due to the deadline announced by the regulator.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
