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| By Beth Canova |
I hope you weren’t shocked when Bitcoin (BTC, “A-”) went down on the approval of spot ETFs.
If you were, I don’t blame you.
Everyone, including our Weiss crypto team, hyped up the approval as a massive watershed moment for Bitcoin adoption.
And indeed, it still is.
That’s why we’re looking beyond near-term price action to see what’s going on.
Our analysis comes to one conclusion: Our long-term outlook for this year hasn’t changed a bit. Indeed, this correction is even a bit welcome.
Let me explain ...
What we’re seeing right now in Bitcoin is a classic “sell the news” scenario.
You can see on the BTC chart below that there’s a noticeable pre-approval surge. That propelled the price to $49,000:
You can also see there was an immediate retracement to December levels.
It then continued pulling back to its current trading price near $42,000.
Why?
Because, beyond the headline-driven trading, Bitcoin needed to correct.
Keep in mind that Bitcoin’s last rally was incredibly overextended. It was artificially sustained by anticipation of the ETF approvals. Once those came in, the “sell the news” traders sparked a natural — and needed — bull market correction.
And as far as crypto corrections go, this one is rather tame.
Still, there is a possibility of Bitcoin dropping to support at $38,000 before the next bullish run.
That’s because there is still some selling pressure in the market.
Grayscale clients currently hold over 600,000 Bitcoin. But holding that incurs them a substantial 1.5% fee imposed by the fund, which can add up.
Now that other ETFs have been approved and started a “race to the bottom” regarding their fees, even those initially reluctant to sell are contemplating it.
This is clear when looking at the inflows for each ETF:
Even though overall ETF net flows are positive and the trading volumes are enormous, Grayscale's sell pressure is impacting BTC and keeping it trading sideways.
Other ETF funds see this as an opportunity and will likely capitalize on it.
After all, the selling pressure and ample supply from Grayscale means other firms can acquire BTC at a more affordable price.
But this opportunity isn’t going to last long.
That’s because the next big event for Bitcoin, it’s halving, is drawing closer. While the exact date isn’t set in stone, it will likely take place around April 22.
As such, the current accumulation period is not indefinite.
In all likelihood, this Bitcoin correction could represent the final opportunity to acquire BTC at a more affordable price for the next year or so.
But what about altcoins? Will they correct in step with BTC?
Maybe.
Some have followed Bitcoin to start their next correction. But on the whole, the sector shouldn’t suffer too much if Bitcoin’s pullback continues to be as shallow as we’ve seen.
If BTC slips further, however, it’s likely that more alts will follow suit.
The same holds true for Ethereum (ETH, “B+”) as the primary altcoin.
So far, however, Ethereum is showing strength.
In fact, the approval of Bitcoin’s spot ETF also triggered a "buy the rumor" response for the second-largest cryptocurrency.
Just as my colleague and editor of our Weiss Crypto Portfolio, Juan Villaverde, said would happen when he called ETH the “belle of this bull market ball.”
That was two weeks ago. He further explained that once the BTC news broke, traders would be eager to anticipate and position themselves ahead of the next significant market narrative.
And their attention went straight to Ethereum. That’s because there are already spot ETH ETF applications sitting with the Securities and Exchange Commission, just waiting for approval.
And indeed, attention and liquidity has already begun to flow from BTC to ETH.
As you can see in the ETH/BTC chart below, ETH is making a determined effort to break out from the trendline it has been following since September 2022:
This suggests traders are gaining confidence in ETH's potential to grow faster than Bitcoin.
Even though there may be a correction throughout the rest of January and February, ETH’s strength shows this won’t last long.
In the meantime, savvy investors may use any pullbacks as an opportunity to adjust their portfolios as needed.
Otherwise, just hold on. This doldrum isn’t going to last long. And when it’s over, we’ll be at the precipice of the next big crypto event for 2024.
Best,
Beth Canova
