The cryptocurrency market was in stabilization mode on Wednesday after nearly two weeks of declines that saw Bitcoin’s (BTC) price fall 21.5% from its high of $41,110 on Jan. 11 to hit a low of $38,500 on Tuesday amid large sales by Grayscale.
While many in the ecosystem are hopeful that Bitcoin’s price has bottomed, a survey conducted by Deutsche Bank showed that more than one-third of respondents think that BTC will fall below $20,000 by next January, according to a report from Bloomberg. The survey was conducted between Jan. 15 to Jan. 19 and asked 2,000 people in the US, UK, and the Eurozone about their views on Bitcoin’s price and volatility.
Numerous analysts have said that the Bitcoin ETFs are expected to increase institutional adoption of the digital asset, but Deutsche Bank noted that the majority of ETF flows have come from retail investors.
Stocks traded mixed, with the major indices initially opening higher before facing headwinds in the afternoon. At the close of markets, the S&P and Nasdaq finished in the green, up 0.08% and 0.36%, respectively, while the Dow lost 0.26%.
Data provided by TradingView shows that Bitcoin oscillated in a narrow range between $39,500 and $40,550 on Wednesday, and trades at $39,730 at the time of writing, an increase of 1.5% on the 24-hour chart.
BTC/USD Chart by TradingView
“BTC has traded to a low of about 38,500 on the back of significant daily outflows from GBTC of $500m - $600m,” said analysts at QCP Capital. “GBTC still has around $21b of AUM, a large potential supply.”
“The break below 40k seems to have been triggered by headlines about Mt.Gox confirming BTC addresses for creditor repayments,” they added. “This is another potentially large supply of 142-200k BTC.”
Pivoting to macro factors affecting global markets, QCP Capital analysts noted that “the People's Bank of China (PBoC) today announced a surprised 50bps cut to the Reserve Requirement Ratio (RRR),” while the Chinese Government “also proposed a $278b package yesterday to support Chinese stock markets.”
“Chinese equities are +7-8% higher from the lows, and this might have provided some support for risk assets today, including crypto,” they said. “We are also paying attention to the upcoming FOMC meeting on Jan. 31 where we expect more color on the pace of the balance sheet runoff, as well as the Quarterly Refunding Announcement (QRA) by the US Treasury.”
The analysts said they expect the US Treasury to “keep to Nov 2023's playbook and issue more short-term debt for two reasons: (1) US elections are happening this year. Keeping liquidity flushed and US equities higher is beneficial for the incumbent regime (i.e. the Secretary of the Treasury more likely to keep her seat); and (2) With the expectation that the Fed will cut rates this year, the US Treasury would want to delay locking in long term issuances now and choose to issue long-term debt later when rates are lower.”
“If the US Treasury issues more short-term debt as we expect, this would be bullish for risk assets and crypto as well,” they said. “However, if they surprise the market by increasing long-term issuances instead, bond yields would rise again and equities would sell off sharply. We think the bullish case is more likely.”
According to analysts at Crypto Chiefs, Bitcoin’s ability to reclaim $39,420 at the Tuesday close “gives us some signs that the worst of the sell-off could be over and that we could be going into a period of consolidation/chop.”
BTC/USD 4-hour chart. Source: X
“We are looking at what happens on a retest of $40.3k to $40.5k,” they said. “This area, which is the previous week's low and DM VAL has been rejected strongly on retests since the move down on Monday. If this zone is reclaimed, then we could start to think about a bigger move toward the weekly open and Monday High at $41.6k.”
Altcoins on the mend
Altcoins showed signs of recovery on Wednesday as all but a dozen tokens in the top 200 recorded gains on the day.
Daily cryptocurrency market performance. Source: Coin360
Notable performers include a 50% surge for dogwifhat (WIF), a 30% gain for Decentralized Social (DESO), and a 27.5% increase for Manta Network (MANTA). Siacoin (SC) saw the largest drawdown, decreasing 15.8%, followed by an 8.3% loss for UMA (UMA), and a 5.1% decline for Curve DAO Token (CRV).
The overall cryptocurrency market cap now stands at $1.55 trillion, and Bitcoin’s dominance rate is 50.3%.
