Cryptocurrency Market Update: Analysis and Insights - January 10, 2024

As you can imagine, Crypto markets are unsettled this week as we get near to the SEC’s decision deadline over the approval of the Bitcoin ETFs. The Bitcoin and Ether prices are ending this week slightly up or flat, that is of course Wednesday to Wednesday.

This week performance doesn’t reflect the fact that implied volatility is soaring. We’ve reached the highest implied volatility on the 7 and 30 day options since the collapse of FTX. the 7-day implied volatility recorded by ‘the block’ reached 86.3% yesterday. The implied volatility reached its highest after the SEC’s X Account was compromised, falsely announcing that the SEC approved the Bitcoin ETFs. Then the SEC president Gary Gensler issued a denial shortly after triggering a mini market crash. The message read and I quote:

“The @SECGov twitter account was compromised, and an unauthorized tweet was posted. The SEC has not approved the listing and trading of spot bitcoin exchange-traded products.”

The message itself is ground for more speculation.

The hack is obviously a serious matter that requires further investigation from the SEC. And eventually, the SEC should be held accountable for clarifying the official mediums used to disseminate material information and for securing properly these mediums.

Looking back at this week’s price dynamics, the Bitcoin price has been swinging between 40,813 us dollars last wednesday and 47,893 yesterday. This is à 7000 dollars range representing nearly 15% of the current price level.

The Bitcoin price collapsed during our call on Wednesday after Matrixreport released arguments supporting against all odds the rejection of ETF applications by the SEC. I quote: ‘From a political perspective, there is no reason to approve a Bitcoin Spot ETF that would legitimize Bitcoin as an alternative store of value.’. The report notes that ‘the current five-person [commission] [...] is dominated by democrats’. If we read between the lines, the report is assuming that these Democrats would be more reluctant to approve this ETF. But you know, as far as we can see, there are pro-crypto senators and congressmen and women in both camps. What is more relevant in the report is that it’s pointing out the downside risk: I quote again: ‘We could see Bitcoin prices declining by -20% very quickly and falling back to the $36,000/$38,000 range.’

Looking at the distribution of options by strike for 2-day options, we certainly have a concentration of puts around the 39k-40k-levels. A correction of 14% from 45,500 in case of rejection. We can also see the concentration of open interest around the 50k level: that’s a 10% rally from 45,500 in case of approval.

As mentioned last week, the crash movement last week, triggered by Matrixport views, was amplified by the liquidation of leveraged long positions: according to Coinglass, nearly 590 million dollars worth of long contracts were liquidated as the market was diving. Among these 590 millions, 137 million are on Bitcoin futures, 99 million on Ether futures, and the remaining 354 millions are on the alternative altcoins.

Altcoins are struggling to recover from last Wednesday’s correction. You can see the Dogecoin price action on this graph. There was an 18% price correction after the Matrixport analysis release, and we’re still nearly 14% below the pre-release level.

I took a snapshot of Coinmarketcap this morning. The worst performers in the top 20 were Cardano down 17%, AVAX down 15.7%, Polkadot, Polygon, ICP and Dogecoin. Looking at it from this angle, Bitcoin and Ether look like market exceptions, and they probably are because they find interest among both retail and institutional investors.

Coinshares is rightly describing the start of 2024 as a ‘good’ one for the digital asset funds. It looks like institutions are so eager to participate in a potential upside triggered by the ETF approval that capital has been pouring into existing ETFs. We have 151 million dollars of net inflows this year so far according to the report and three positive consecutive weeks. This week’s largest share goes to the US Bitcoin future ETFs, underlining the increasing US investors interest in the sector. Looking at the flows by asset, we have 112.6 million invested in Bitcoin-linked products, and 29.6 million in Ether-linked products.

*This is not financial advice. Not intended for UK customers.