bitcoin price has plummeted below the $39,000 mark, the lowest level since December 2. This significant drop can be attributed to three main factors that have collectively contributed to the current market sentiment and price action.
#1 Selling Pressure on Grayscale GBTC Exits
The market has been heavily influenced by the continued outflows from Grayscale bitcoin Trust (GBTC). James Seyffart, Bloomberg analyst commented about the seriousness of the situation, saying, “Wow. BAD day for bitcoin ETFs in general in the Cointucky Derby. GBTC saw over $640 million leave today. Capital outflows are not slowing down, but rather increasing. This is the biggest exit yet for GBTC. The total so far is $3.45 billion.”
However, bitcoin ETF volume remained very strong, exceeding $2 billion, with GBTC accounting for more than half of this volume. Total volume during the first seven days of trading approached $19 billion.
Interestingly, while GBTC saw significant outflows, the broader picture of bitcoin ETFs shows a different picture. Excluding Grayscale, the nine new ETFs have collectively accumulated 95,000 bitcoin ($3.8 billion), in stark contrast to the 65,000 bitcoin ($2.9 billion) that came out of the GBTC.
22,000 btc comes from the sale of FTX Estate, meaning it does not flow to others. While the cessation of this oversupply is overall positive for the market, it remains crucial to monitor whether Grayscale outflows persist or intensify, even after the conclusion of the FTX-related sell-off.
#2 Futures and options markets cool
A major contributor to bitcoin's price movement below $39,500 is cooling activity in the futures and options markets. In particular, the open interest in CME bitcoin futures experienced a sharp drop, losing over $1.64 billion following the approval of spot btc ETFs, indicating a reduction in market leverage and speculative interest.
Biased crypto Analyst provided a nuanced analysis of market dynamics, focusing particularly on the interaction between bitcoin perpetual futures (perps) and the spot market. Skew noted: “There is nothing too conclusive in the crook market yet, other than shorts becoming the dominant position in the market currently. Delinquent premiums often occur during periods of spot limit selling on price. Spot premiums, especially when criminals push the price into limit bidding areas on spot exchanges.”
This observation points to a shift towards bearish sentiment in the rogue market, with priority given to short positions. The analyst also highlighted the current market's lack of volatility and urgency, attributing this to lower open interest and a focus on spot market flows.
Greeks.live options analysis platform sheds more light on market sentiment aggregate information about the options market, in particular the behavior of bitcoin's implied volatility (IV) and the volatility risk premium (VRP). They noted: “bitcoin fell below $40,000 as short-term IVs rallied. Overall, the PRV has increased and the skew curve is skewed towards puts.”
This shift towards puts means an increase in the number of market participants covering or betting on larger downsides, thus contributing to the bearish sentiment. However, Greeks.live also noted that despite the bearish forces and the presence of panic orders, the overall market continues to witness a balanced play between bulls and bears.
#3 Change in sentiment: Requests for $35,000 get stronger
The third fundamental factor influencing bitcoin price drop below $39,500 is a notable shift in market sentiment, which emphasizes the need for a correction after a prolonged bullish period. Charles Edwards, founder of Capriole Investments, articulated the current state of the market, highlighting the abnormality of recent price trends and forecasting an inevitable return to volatility.
Edwards fixed, “We are not here yet. This pullback is long overdue and lower is healthier.” He pointed out the oddity of the current market conditions, noting: “It has been over 232 days since bitcoin had a decline of over 25% in the previous 12 months. The last time this happened was over a decade ago, in 2011! The current period of low downside volatility is NOT normal. These falls usually occur every 2-3 months. “Volatility will return.”
The recent price correction, while perceived by analysts as a healthy and overdue adjustment, has instilled a sense of panic among traders and investors. Market sentiment has taken a negative turn, especially as bitcoin experiences a -20% drop, a move attributed in part to Grayscale's oversupply.
The once-solid bullish optimism has faded, giving way to stronger calls for a fresh drop to $35,000 or even lower. This change in sentiment is quantitatively reflected in the bitcoin Fear & Greed Index, which has moved to a neutral position of 50, marking a significant departure from the extreme greed seen during the uptrend.
At the time of publication, btc was trading at $39,219.
Featured image from iStock, chart from TradingView.com
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