Bitcoin had an impressive start to the year as it soared by more than three grand on the second day of the year, reaching its highest price point since April 2022 at almost $46,000.
The rally came to an abrupt end today, and here are some of the possible reasons behind that nosedive.
SEC to Reject All ETF Proposals?
All eyes in the crypto community in the past several months have been on the US Securities and Exchange Commission and the possibility of it finally approving a spot Bitcoin ETF. Although the agency has delayed or rejected numerous previous applications, the overall sentiment is different this time around, mainly because of the inclusion of financial behemoths like BlackRock, Fidelity, WisdomTree, and others.
Moreover, experts have speculated that the Commission will likely greenlight such a product, which is estimated to bring trillions of USD into the crypto markets in the next few years, in mid-January. The anticipation for a spot Bitcoin ETF resulted in a notable price rally for BTC at the end of 2023 and the start of 2024.
However, reports emerged earlier today that the SEC might actually reject all current applications as well as they lack essential guidance on how the ETFs will avoid market manipulation. Given the significance of such a decision, if it comes true, of course, it’s no wonder that the speculations about upcoming rejections brought BTC’s price south in a tremendous fashion.
Nevertheless, Bloomberg’s leading ETF expert rejected the rumors, saying they had not seen any indications of such developments.
People tagging me like crazy on this “rejection” report. We have heard nothing to indicate anything but approval but I want to give the guy benefit of doubt so I’m asking if he has any sources or if he just speculating. He seems to be bitcoin bull and recently tweeted… https://t.co/KV7k4NXtba
— Eric Balchunas (@EricBalchunas) January 3, 2024
Miners Behind the Dump?
Bitcoin miners are perhaps the heart and soul of the world’s largest blockchain as they help mine new BTC, validate transactions, and keep the network secure.
While the last part is particularly true in recent months and years, since Bitcoin’s hash rate has gone through the roof, miners have felt the negative consequences of that, especially since the block rewards will decline in the next few months after the fourth halving.
Since they have to cover costs and also make profits, miners frequently capitalize on price pumps by selling portions of their Bitcoin holdings. CryptoPotato warned yesterday that large mining companies had deposited tons of BTC onto exchanges amid the price surge to $46,000, which is typically followed by a sell-off.
Overhype and Greed
Being a relatively new financial asset operating on the free market, Bitcoin is often quite volatile. It has no days off and doesn’t chill on the Holidays, which attracts speculators and those looking for a quick buck. This leads to impressive price gains but also retracements.
In general, BTC tends to correct by double-digit percentages in a few weeks into an impressive rally, but this hasn’t been the case so far during the late 2023 price surge. There were warning signs yesterday as well. Amid BTC’s surge to almost $46,000, the Relative Strength Index (RSI) displayed a caution signal as it went into overbought territory on the 4-hour chart.
Additionally, the Fear and Greed Index soared above 70, which showed that investors had become quite greedy. And, as Warren Buffett’s saying goes – be fearful when others are greedy. A sharp retracement typically follows such market sentiment.