Cryptocurrency Market Update: Analysis and Insights - January 24, 2024

The cryptocurrency market sell-off continued this week as the Bitcoin price, the BTC/USDT pair on Binance, lost 3.39% on Thursday and 4.84% on Monday. The price is down by nearly 10% this week and was still this morning below 40,000 US dollars. The weekly low is at $38,555 on Binance, a level that was last seen in November last year.

The Ether price in US dollars lost more than 15%. The native currencies of the layer 2 and Ethereum competitors are also diving, printing double digit losses: we have Solana’s SOL that lost 17.61%, Polygon’s MATIC lost more than 15%, Optimism lost more than 25%, Avalanche AVAX more than 19%.

The total market capitalization given by TradingView, representing the top 125 coins, is down 19.5% from its peak reached on January 11th, since the Bitcoin ETFs have been approved.

The 30d implied volatility has been going down with the market. It is now consolidating around 46%. The implied vol is now comparable to levels observed in November.

Among the two scenarios laid out in our weekly calls before the ETF approval decision, one that would send the Bitcoin price to 50,000 before the end of the month, and the other that would could send it to 38,000, the latter prevailed, not for the reasons explained by Matrixport at the time, but rather for a ‘take profit’ rush among the Bitcoin futures, future ETFs and Grayscale GBTC holders.

On the CME exchange, futures representing more than 21,500 Bitcoins were either sold or liquidated within a few days after approval. The CME Bitcoin Open interest is now stabilising around a size equivalent to 116 thousand Bitcoins.

Nearly 55,000 Bitcoins have been sold by the Grayscale fund since the approval according to Coinglass. And FTX is probably the largest seller. It had last year close to 22 million shares in the trust, which represents almost 20,000 Bitcoins.

But there are also profit takers that entered GBTC potentially at a 40% discount in June, but more likely at a 20 or 30% discount since August last year: this is when Grayscale won its court battle against the SEC. These short-term speculators have been selling their GBTC shares now that the fund turned into an ETF and that the discount gap closed in the process.

Also, according to the miners' reserves, more than 10,000 Bitcoins have probably been sold by miners at the peak, And a few thousands sold by the Purpose Bitcoin ETF and the Proshares Bitcoin Strategy ETF. So probably nearly 100 thousand Bitcoins were sold by these participants.

But on the other hand, we’ve had roughly as many Bitcoins bought by the newly approved ETFs. Blockworks reports a total AUM on Bitcoin ETFs, excluding Grayscale, at nearly 4.2 billion US dollars, against 1.5 billion last week. The Blackrock ETF (IBIT) for instance holds almost 40,000 Bitcoins as of Monday, that’s an average of 3,630 Bitcoins per day bought by this ETF alone. The Fidelity ETF is comparable. In third place, we have Bitwise with 11,000 Bitcoins held.

Looking at the most recent crypto asset flow report by Coinshares ending on January 19th, we’ve had a net 21 million US dollars worth of asset outflows. Nearly 25 million US dollars outflows on Bitcoin.

Now there is hope for a market reversal, or at least a consolidation around the 40,000 level. But as usual, there is always a specific risk looming. And the risk today is on the 142,000 Bitcoins to be repaid in the context of the Mt. Gox proceedings. The Mt. Gox rehabilitation trustee notified creditors a few days ago that it is ready to repay them. Some settlements might have happened already late December in some European jurisdictions as reported in the Reddit Mt Gox insolvency forum.

We will certainly have interesting supply and demand dynamics this year that could either compromise or boost the performance of Bitcoin and Bitcoin cash during the anticipated bull cycle.

• The 142,000 Bitcoins unlocked could offset the shortage triggered by the halving event in April, or the demand for Bitcoin ETFs.
• From an institutional markets' perspective, the Equity market bull run seems to have started with the current earnings season. The S&P 500 is up 2% this year so far. The institutionalisation of Bitcoin and Ether in the US could help crypto markets grow faster in the context of an Equity market rally.

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