It is the lowest level since December 2 that Bitcoin has fallen below the $39,000 mark. A significant drop in the market sentiment and price action can be attributed to three main factors.
Grayscale’s GBTC outflows are #1 selling pressure
GBTC (Grayscale Bitcoin Trust) has been a major contributor to the market’s decline. In response to the severity of the situation, Bloomberg analyst James Seyffart stated, “Woof.”. The Cointucky Derby was not a good day for Bitcoin ETFs. More than $640 million departed GBTC today. There is no slowdown in outflows – they are on the rise. This is the largest outflow yet for GBTC. Total out so far is $3.45 Billion.”
Even so, Bitcoin ETF volumes exceeded $2 billion, with GBTC accounting for more than half of the total. A total of $19 billion was traded over the first seven trading days.
The Bitcoin ETF landscape, while GBTC experienced significant outflows, paints a different picture. GBTC lost 65,000 Bitcoin ($2.9 billion) compared to the 9 new ETFs that collected 95,000 Bitcoin ($3.8 billion).
A total of 22,000 Bitcoins have been sold from the FTX Estate, which means that they have not been transferred to other exchanges. In spite of the fact that the FTX-related sell-offs have ended, it remains crucial to monitor whether Grayscale’s outflows persist or intensify.
#2 There is a cooling down in the futures and options markets
There has been a significant cooling in futures and options markets that has contributed to Bitcoin’s price movement below $39,500. Specifically, CME Bitcoin futures open interest declined by over $1.64 billion following the approval of spot BTC ETFs, indicating reduced market leverage.
Using Bitcoin’s perpetual futures (perps) and spot market as a point of comparison, cryptocurrency analyst Skew provided a detailed analysis of market dynamics. Currently, shorts are dominating the perps market as Skew stated. Spot limit selling usually results in perp premiums. Spot premiums notably when perps push price into areas of limit bids on spot exchanges.”
According to this observation, short positions are taking precedence in the perps market. A decrease in open interest and an emphasis on spot market flows may explain the current market’s lack of volatility and urgency.
Greeks.live, a platform that provides options market analytics, added insights into Bitcoin’s implied volatility (IV) and volatility risk premium (VRP) related to the market sentiment. As short-term IVs recovered, Bitcoin fell below $40,000. Skew curves tend to favor put options, and VRP has risen.”
Increasing market participants are hedging or betting against further downside as a result of this shift to put options. This contributes to the bearish sentiment as a whole. However, Greeks.live also pointed out that despite the bearish forces and the presence of panic orders, the overall market is still witnessing a balanced game between bulls and bears.
#3 The mood is shifting – calls for $35,000 are getting louder
A notable shift in market sentiment also played a crucial role in Bitcoin’s drop below $39,500, emphasizing the need for a correction after a prolonged bull market. Capriole Investments founder Charles Edwards highlighted the abnormality of recent price trends and forecast a return to volatility in the market.
Edwards said, “We’re still not there yet.”. The pullback is very overdue and lower is healthier”. He also pointed out the rarity of this market condition, saying there haven’t been any 25%+ drops in Bitcoin in the previous twelve months for 232 days. In 2011, this happened for the first time in almost a decade! The current low downside volatility period is NOT normal. These dips usually occur every 2-3 months. Volatility will return.”
Although analysts consider the recent price correction healthy and overdue, traders and investors are feeling panicked. Due to the overhang of Grayscale’s supply, the market’s sentiment has taken a negative turn, especially with Bitcoin experiencing a -20% dip.
Formerly confident bulls are now calling for a further drop to $35,000 or even lower. During the uptrend, extreme greed was seen in the Bitcoin Fear & Greed Index, but that sentiment has shifted quantitatively to neutrality, marking a significant departure.
The price of BTC at press time was $39219.
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