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Bitcoin price recovery at risk due to DXY strength and GBTC selling

by SuperiorInvest

Bitcoin (BTC) traders are recovering from the current sell-off, with the recently launched Bitcoin exchange-traded funds (ETFs) failing to produce the desired price increase. In addition to the constant outflows from the Grayscale Bitcoin Trust (GBTC) affecting the price of BTC, market participants are now facing another problem: a strong US dollar.

The strong recovery of the US dollar

The US Dollar Index (DXY), which tracks the performance of the dollar against a number of major foreign currencies, has risen 2.71% from its December 27 low of 100.617 amid encouraging US economic data.

Retail sales, the Philadelphia Fed Manufacturing Index, and weekly initial jobless claims provided tailwinds to the DXY, lifting it to new 2024 highs in the 103.65-103.70 range.

Data from the US Census Bureau shows that retail sales in December 2023 recorded 0.6% growth versus the expected 0.4% and 0.3% in the previous period.

The dollar’s recovery has also been attributed to a rally in US yields across the curve, all in response to declining bets on the likelihood that the Federal Reserve could begin cutting interest rates as soon as March.

From a technical perspective, the US Dollar Index looks poised to rally over 1.12% due to the formation of a classic V-shaped recovery pattern.

1-day DXY chart. Source: TradingView

If the DXY manages to break above its neckline of 104.56, the probability of a prolonged rally towards 107 in the coming months is higher.

Massive GBTC Outflows Affect BTC Price

Since Bitcoin Spot ETFs launched on January 11, Massive exits from GBTC have been witnessed. As a result, Grayscale has liquidated a large amount of Bitcoin as part of its GBTC holdings. Nearly 38,000 BTC have left GBTC since it became a spot ETF on January 11.

Outflows of $484 million from Grayscale occurred on January 12 alone as GBTC holders capitalized on open swap options.

In a recent statement, popular economist and gold fan Peter Schiff suggested that despite the approval of the Bitcoin spot ETF, the price of BTC is not increasing due to exits from Grayscale’s GBTC product. He mentioned that although the total inflows were higher, they seemed to have a limited impact on the overall BTC market.

Related: Bitcoin Trader Who Called BTC Price High of $48,000 Signals New Bearish Signal

Bitcoin price could fall to $34,000

Independent market analyst Ali has pointed to BTC price movement in an ascending parallel channel since late 2022. According to Ali, Bitcoin’s current correction is due to the rejection of the channel’s upper limit at $48,000.

The analyst anticipates a pullback for Bitcoin, projecting a drop to the lower limit of $34,000.

However, market intelligence firm Santimet said the market was still optimistic about the long-term impact of spot Bitcoin ETFs.

The firm published the following chart on X, adding:

“However, the #FOMO surrounding the approvals arguably helped mark a local #cryptotop, as many experts believed that the inevitable conclusion of these approvals was already ‘built into’ market prices at the time. that the announcements were made”.

BTC price performance. Source: Sentiment

After Bitcoin saw a 16.9% drop from $49,000 last week to $40,600, Santiment said the narrative surrounding these ETFs could shift to “associating them with words like #scam or #scam or #disaster.”

If bearish sentiment emerges around the theme that initially drove prices up from October to December, Santiment anticipates that FUD (fear, uncertainty and doubt) could trigger a series of liquidations by novice traders.

This article does not contain investment advice or recommendations. Every investment and trading move involves risks, and readers should conduct their own research when making a decision.

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