(Kitco News) - Bitcoin (BTC) continued to consolidate below $44,000 on Tuesday as traders have been in portfolio rebalancing mode since last week’s launch of the first spot BTC ETFs on the U.S. markets, which opened the door for large institutional inflows for the first time in the history of digital assets.
While the large inflows have yet to materialize, analysts say it is only a matter of time before they start as many advisors are waiting until the dust settles before making an allocation.
Data provided by TradingView shows that BTC has spent most of the day trading near support at $42,700, where bulls and bears have been locked in a battle for control. An attempt by bears to break below $42,000 was solidly defended by bulls, who have since reversed course and are pushing the price action higher, with Bitcoin trading at $43,300 at the time of writing.
BTC/USD Chart by TradingView
“Post the Bitcoin ETF approvals, the sell-off seen at the end of last week was a direct result of short-term holders realizing substantial profits against their average realized buy-in price of around $38,000,” according to the latest Alpha report from Bitfinex.
“We maintain our stance that the market remains prone to corrections and pull-backs in this early part of the year,” the analyst said. “We note that immediately preceding the sell-off there was an unprecedented transfer of 'in the money' BTC to exchanges.”
“We see a number of factors that continue to show an underpinning to Bitcoin’s price,” Bitfinex said. “Firstly there has been a significant increase in ERC-20 stablecoins on exchanges, signalling heightened market speculation and investor confidence. Historically, an expansion of stablecoins leads to increased buying.”
ERC-20 stablecoin exchange reserve. Source: CryptoQuant
“Secondly, the Bitcoin CME futures contract continues to see high levels of open interest, hitting a new year-to-date high just before the ETF approvals were announced, and even post the event remains at high levels,” they said. “This suggests that sophisticated investor interest in BTC continues, albeit through derivative instruments rather than direct holdings.”
Bitcoin CME futures open interest. Source: VeloData
A third factor supporting Bitcoin’s price is long-term holders, who “remain steadfast in their positions, underscoring a market that is resilient yet susceptible to short-term volatility,” Bitfinex said.
“Now that the ETF approval has officially come through, we look forward to a substantial widening of the Bitcoin investor base, bringing with it a fresh wave of enthusiasm among investors and market players,” the analysts said.
Short-term holders (STHs) “have been sitting on substantial unrealized profit margins, averaging around 30 percent in early January,” they said. “Historically, such high levels of unrealized profits among STHs have often preceded corrections in BTC till the realized price for the cohort is close to being reached. This is currently at $38,000. This pattern suggests that when short-term holders accumulate significant paper gains, they may become more inclined to realize these profits by selling, leading to increased selling pressure in the market and triggering price corrections.”
MN Trading founder Michaël van de Poppe also sees the potential for a correction below $40,000 as BTC consolidates following the historic launch of the first spot BTC ETF.
Primary scenario for #Bitcoin is basically a rejection at $46K and then a correction to sub $40K.
Still liquidity ready to be taken there and it would cause a chain reaction across the markets, FUD, negative sentiment (unjustified) and such.
Always ready to buy the dip. pic.twitter.com/G6kxSS2uGZ— Michaël van de Poppe (@CryptoMichNL) January 16, 2024
