Bitcoin Slides 5% as ETF ‘Sell-the-News’ Effect Hits Hard

• Bitcoin falls below $39,000, erasing recent gains; CoinDesk 20 posts 7% decline in value.
• FTX equity sales and Bitcoin spot ETF anticipation key factors in current volatility.

Bitcoin has posted a decline in value, settling below the $39,000 mark. This decline represents the unwinding of most of the gains that had previously accrued in anticipation of the approval of spot Bitcoin ETFs in the United States.

Bitcoin experienced a nearly 5% pullback in 24 hours, marking its lowest price in a two-month period. In parallel, the CoinDesk 20, which tracks the most liquid tokens by market capitalization, suffered a 7% drop.

During trading hours in Europe on Tuesday, Bitcoin’s price dipped to $38,700, before making a marginal recovery. The asset had reached over $49,000 recently, its highest level in two years, just as spot Bitcoin ETFs kicked off trading in the U.S. on Jan. 11.

Analysts have linked Bitcoin’s recent selling pressure to the sale of assets from the bankrupt FTX estate, which has liquidated approximately 22 million shares of Grayscale’s GBTC.

According to reports from CoinDesk, this selling activity has influenced the downward price trend. CryptoQuant, a blockchain analytics entity, had anticipated that the ETF approval could generate a post-announcement selling effect.

The term “selling the news” applies to the practice of boosting asset prices ahead of an anticipated positive event, only to see a decline in prices once the event occurs. The approval of spot Bitcoin ETFs in the U.S. was a highly anticipated event and according to analysts at bitBank, this event is positioned as a potential peak for the price in the near to medium term.

On the other hand, analysts at 10X Research, led by Markus Thielen, were forecasting a drop in the Bitcoin price in the near term, potentially to $38,000, based on technical analysis. CryptoQuant, meanwhile, set an even more conservative projection, estimating a price target of $32,000.

It is observed that spikes in the leverage ratio tend to correlate with significant price movements, both up and down. This suggests that changes in the level of leverage may be a precursor to Bitcoin price volatility.

In the chart, leverage peaks in April 2021 and November 2021 coincide with falls in the Bitcoin price. Similarly, a sharp drop in the leverage ratio in January 2023 appears to have preceded a recovery in the Bitcoin price.

Currently, the leverage ratio is on a downward trend, which could be interpreted as a decrease in market risk and speculation.

However, it is still relatively high compared to historical levels, suggesting that there is still significant speculation in the market. This could imply that the market still has potential for further corrections if leverage breaks down faster.

As for the future of Bitcoin based on this chart, the current downtrend in the leverage ratio, if it continues, could signal a period of consolidation or even a recovery in Bitcoin’s price as the market deleverages and stabilizes.

Recent events highlight the fluctuating nature of the cryptocurrency market and the need for rigorous technical analysis. Market participants must remain informed and prepared to adjust their investment and trading strategies in the face of sudden changes in the market.

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