Rebound equals sell-off? What happened to Bitcoin?

Bitcoin's rebound resulting in a sell-off? What went wrong?

Author: Lyllah Ledesma, CoinDesk; Translation: Song Xue, LianGuai

Bitcoin (BTC) experienced a rapid surge in price at the beginning of the year, almost doubling its value. However, in the past few months, most of the trading has been within a narrow range, making it difficult to sustain above $30,000.

Since April, especially since mid-June, whenever Bitcoin attempts to break through $30,000, its price suddenly reverses. The most dramatic moment occurred on July 13th when a favorable ruling was made by a U.S. court regarding XRP, causing the cryptocurrency to soar to a year-high of over $31,800. The U.S. Securities and Exchange Commission filed a lawsuit against Ripple, the company selling XRP. Within hours, Bitcoin not only fell below the $31,000 mark but also dropped below $30,000, eventually falling below $29,000 within a few days.

A recent example occurred this week when, in the late afternoon on Tuesday, the price of BTC climbed throughout the day to $30,100. However, before the news of the rebound was released, Bitcoin declined by more than 1% to around $29,700. At the time of writing, its price is $29,400.

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One thing that can be certain is that the recent decline in Bitcoin over the past few months has proven to be temporary, as the price quickly rebounds every time it falls below $29,000.

(Bitcoin price trend in the past month)

Waiting for Regulatory Clarity

Analysts have pointed out various reasons why the upward trend is difficult to maintain. One of them is that many buyers are waiting and watching, until there is clear approval by the U.S. Securities and Exchange Commission for spot Bitcoin exchange-traded funds (ETFs).

Spencer Hallarn, a derivatives trader at market maker GSR, said, “The market is in a state of uncertainty as it awaits new fundamental information.” Hallarn stated that the market will remain stable until the SEC makes a decision on recent Bitcoin ETF spot applications.

In mid-June, after financial giant BlackRock (BLK) applied for a Bitcoin spot ETF, the U.S. Securities and Exchange Commission (SEC) released highly anticipated news, prompting many other traditional asset management companies to follow suit with their own applications (or resubmit previously rejected applications).

Miners are sellers

Sean Farrell, Director of Cryptocurrency Strategy at FundStrat, stated that another reason for the lack of momentum in Bitcoin is that miners are taking profits before the halving event. The so-called halving, where block rewards are reduced from the current 6.25 bitcoins to 3.125 bitcoins, is expected to occur on April 16, 2024. “It is evident that this group of people is taking profits after the significant surge in Bitcoin and surrendering in the prolonged period of price stability,” said Farrell.

Farrell said that any subsequent rebound action is lackluster and may be due to a continued lack of new retail participation in the market. “The good news is that this pattern is a signal of the early part of a previous bull market,” he said. “Some positive ETF news will definitely help us break out of this consolidation phase.”

Coiling for Big Moves

Hallarn said, “The market has been confined within such a narrow range for the past month that the changes have caused open options contracts to cluster in the same area, which has suppressed volatility until it breaks out of the recent range.” He said that volatility will be suppressed until it breaks out of the range and is “no longer constrained by this effect.”

Independent cryptocurrency derivatives trader Christopher Newhouse said that there is strong resistance at local highs in derivative trading. “Even small rallies in the front end of the curve are almost immediately sold off. Higher spot prices are not the only factor causing traders to quickly retreat – volatility is also a factor,” he said.

Newhouse echoed Hallarn’s thoughts, saying one of the potential catalysts is a spot ETF and any subsequent delays or approvals. He added that this could be an opportunity to short August/September volatility and go long on options with further expiry dates.

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