(Kitco News) – Bitcoin (BTC) bears continued to apply downward pressure in early trading on Tuesday, but bulls are putting up a fight, as the top crypto briefly dipped to $64,300 amid outflows from spot BTC exchange-traded funds (ETF) and rising FUD in the altcoin market.
BTC/USD Chart by TradingView
“Last week, we broke a streak of 20 consecutive days of inflows, and we have now had consecutive outflows for the past 3 trading days with over $550 million in outflows last week and $146 million in outflows on the first day of the current trading week,” said Jag Kooner, Head of Derivatives at Bitfinex.
Kooner highlighted two key reasons for the uptick in outflows: “(1) ETF investors lacking conviction and selling below their cost basis; and (2) Unwinding of the basis arbitrage trade.”
For investors selling below their cost basis, he said, “This is a pattern among ETF investors, where they seem to magnify market moves. We saw a similar dynamic when there were net inflows in late April of over $1 billion when BTC range highs were above $70,000, followed by significant outflows when range lows approached $60,000.”
As for the arbitrage trade, Kooner noted, “We've had significant outflows as CME futures open interest for BTC has declined by $1.2 billion in the past 10 days. This could mean that as funding rates have gone negative amidst this price decline, ETF inflows that were part of the basis trade have unwound.”
Delving further into ETF flows was Matteo Greco, Research Analyst at s Fineqia International, who said last week’s $580 million worth of outflows reduced “the total net inflow since inception to $15.1 billion.”
“The recent price drop was also influenced by high selling volumes from miners,” he said. “Mining activity has been impacted by the recent Bitcoin halving, which reduced block rewards from 6.25 to 3.125 BTC. This event forces miners to optimise their capital efficiency to maintain profitability, initially causing a significant decrease in profitability as rewards are halved from one block to the next.”
“Additionally, the Bitcoin network's hashrate has sharply increased over the past few years and has only decreased by 4% following the halving,” Greco added. “This indicates strong competition in the mining sector, with businesses forced to find various revenue streams to stay profitable and optimise capital efficiency.”
He said that in this market phase, “miners tend to sell more heavily due to the halved rewards. High prices encourage this sell-off, allowing miners to bolster their cash reserves and better prepare for potential future bear markets. The 2022 bear market caused significant distress in the mining sector, making current market conditions particularly critical for miners in preparation for periods of market downtrend.”
But there are positive forces at work in the market as well, including continued growth for Australian-listed spot BTC ETFs.
“Following Monochrome's launch on Cboe Australia, VanEck has obtained approval to list a BTC Spot ETF on the Australian Securities Exchange (ASX), one of the country's most important exchanges,” he said. “The product is set to launch on Thursday the 20th, confirming the increasing worldwide adoption of BTC as an asset class among traditional finance investors.”
And the crypto market is still eagerly awaiting the launch of the first spot Ethereum (ETH) ETFs in the U.S. market, Greco added.
“Gary Gensler, the Chairman of the Securities and Exchange Commission (SEC), has confirmed that he anticipates ETH Spot ETFs to start trading during the summer,” he said. “Some analysts expect this to happen as soon as the first week of July, with conversations between the SEC and issuers in their final stages.”
“The launch of ETH Spot ETFs may pave the way for issuers to file for several other digital asset ETFs,” Greco said. “Recently, rumours have been circulating about BlackRock soon filing for a Solana ETF. This suggests that the approval of ETH Spot ETFs could facilitate the filing and approval of other major digital assets that use Proof-of-Stake (PoS) as their consensus mechanism.”
Altcoin exodus weighs on crypto market
While Bitcoin’s price is showing resilience to downward pressures, the same cannot be said for altcoins, which have faced heavy losses in recent weeks. Multiple tokens in the top 200 have seen double-digit losses in early trading on Tuesday.
Daily cryptocurrency market performance. Source: Coin360
The main source of the sell-off appears regulation-related, as authorities in South Korea have announced their intention to review 600 altcoins for regulatory compliance in the near future.
The move comes as the country prepares to implement its Virtual Asset User Protection Act (Virtual Asset Act) next month, which has sparked a round of panic selling by investors who worry that tokens they hold could be delisted from South Korean exchanges.
Local media reports indicate that financial authorities “will review 600 domestic virtual assets on a quarterly basis starting next month and suspend trading of coins that do not meet the standards for listing maintenance.”
Long-time crypto holders were quick to point out that a similar development has happened during past bull market cycles, and eventually, the market will return with a vengeance.
“According to local media sources, the [South Korean] regulator will review 600 altcoins for compliance with regulatory requirements,” tweeted Crypto Joker. “What are Koreans doing? Right, they're dumping their coins.”
“In January 2018, Korea also caused an altcoin dump when it announced that the Ministry of Justice of South Korea was preparing a law to ban cryptocurrency trading. Over time, we got a powerful bull market,” he added. “And essentially, the situation isn't changing much now - we'll get a bull market sooner or later.”
For now, the market is working to integrate the latest FUD campaign, and prices are expected to see weakness for the time being.
At the time of writing, Bitcoin trades at $64,500, a decrease of 1.23% on the 24-hour chart.
