A potential Bitcoin (BTC) price correction down to $22,000 is becoming increasingly likely, as BTC derivatives show signs of bearish tendencies. The recent performance of Bitcoin’s price chart indicates a worsening of investor sentiment following Grayscale’s legal victory against the United States Securities and Exchange Commission on August 29 and the subsequent postponement of multiple spot BTC exchange-traded fund (ETF) requests by the SEC.
The central question remains whether the prospects of an ETF can outweigh the growing risks. The hype surrounding a potential spot Bitcoin ETF has been fading. Following the initial filing of BlackRock’s ETF, the 19% rally that occurred fully retracted as Bitcoin moved back to $26,000. There was a failed attempt to reclaim the $28,000 support, as investors raised the odds of an ETF approval following positive news regarding Grayscale’s Bitcoin trust request.
Cryptocurrency investors’ morale has been deteriorating, with the S&P 500 index closing at 4,515 on September 1, only 6.3% below its all-time high from January 2022. Even gold, which has struggled to break above the $2,000 level since mid-May, is 6.5% away from its all-time high. Consequently, the general feeling for Bitcoin investors just seven months ahead of its halving in 2024 is certainly less positive than expected.
Some analysts attribute Bitcoin’s lackluster performance to ongoing regulatory actions against leading exchanges Binance and Coinbase. Additionally, there are claims that the U.S. Department of Justice is likely to indict Binance in a criminal probe related to allegations of money laundering and potential violations of sanctions involving Russian entities.
According to North Node Capital’s chief investment officer, known as Pentoshi, the potential gains from a spot ETF approval outweigh the price impact of regulatory actions against the exchanges. However, this assumption fails to consider other factors, such as the decline in U.S. inflation and the reduction of the U.S. Federal Reserve’s total assets, signaling a draining of liquidity from the markets.
While Bitcoin’s price has been holding at the $25,000 level since mid-March, closer analysis of derivatives data shows decreasing demand from bulls. Bitcoin monthly futures typically trade at a slight premium to spot markets, reflecting sellers asking for more money to delay settlement. However, Bitcoin’s current futures premium is at its lowest point since mid-June, indicating a decreased demand for leverage buyers utilizing derivatives contracts.
Analyzing options markets reveals a bearish sentiment, with protective put options trading at a premium compared to similar call options. This further suggests an anticipation of a Bitcoin price drop and adds to the bearish momentum indicated by the derivatives data.
Given the SEC’s concerns about unregulated offshore exchanges based on stablecoins, the approval of a spot Bitcoin ETF may be deferred until 2024, strengthening the bearish case. The uncertainty in the regulatory landscape, including potential actions from the DOJ and ongoing lawsuits against exchanges by the SEC, favors the bears.
Considering the recent inability to sustain positive price momentum despite the heightened chances of a spot Bitcoin ETF approval, a retracement down to $22,000, the level last seen when Bitcoin’s futures premium was 3.5%, is the most likely scenario.
It is important to note that this article is for general information purposes and should not be taken as legal or investment advice. The author’s views and opinions expressed here do not necessarily reflect those of Cointelegraph.
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