On October 2nd, Bitcoin (BTC) experienced a significant increase in price, reaching $28,600. However, this momentum was short-lived as the launch of Ether (ETH) futures exchange-traded funds (ETFs) failed to generate substantial trading volumes. Investors were hopeful about the recent rally towards the upper end of the price range, but comments from US Federal Reserve representatives raised concerns about a potential economic downturn.
Bitcoin showed short-term strength by maintaining support at $27,200 on October 3rd and subsequently surging above $27,500 on October 5th. Despite these positive movements, three key trading metrics indicated a lackluster level of support for the cryptocurrency. These metrics include spot market volumes, derivatives, and confidence in the approval of a spot Bitcoin ETF.
One contributing factor to the downward pressure on Bitcoin’s price is the macroeconomic forces at play. Michael Barr, the US Federal Reserve Vice Chair for Supervision, expressed concerns about a slowdown in economic growth due to higher interest rates constraining economic activity. He also noted that the full impact of the current monetary policy has yet to be realized. The market is currently divided on the possibility of another interest rate hike by the Fed in 2023.
In addition, the real yield on US 10-year Treasurys reached its highest level in nearly 15 years, standing at 2.47% on October 3rd. This increase partly explains the rise of the US Dollar Index (DXY) to its highest point in 10 months. The US has become a more appealing investment destination due to its resilient economy, boasting stronger growth prospects compared to Europe and China.
Bitcoin trading metrics also indicate a diminished activity for leverage longs. BTC futures typically trade at a premium to spot markets, but the current futures premium remains below the 5% neutral threshold, suggesting a lack of demand for leveraged long positions. Additionally, spot trading activity on traditional exchanges has decreased to levels not seen since late 2020, indicating reduced participation from institutional investors. This decrease in trading volumes may be attributed to major US-based trading firms distancing themselves from the cryptocurrency markets due to heightened regulatory scrutiny.
Investors’ expectation for the approval of a spot Bitcoin ETF has also dropped. Despite Bitcoin’s significant gains in 2023, driven in part by the anticipation of an approved spot Bitcoin ETF by the US Securities and Exchange Commission, the recent launch of Ether futures-based ETFs saw lackluster demand. Furthermore, the Grayscale Bitcoin Trust continues to trade at a 19% discount compared to its Bitcoin holdings, suggesting a lack of confidence in the approval of a spot Bitcoin ETF.
In conclusion, Bitcoin was unable to surpass the resistance level at $28,500, and Federal Reserve representatives warned of impending economic pressures. As a result, breaking above this resistance in the short term seems less likely. The current trading metrics, macroeconomic forces, and decreased confidence in the approval of a spot Bitcoin ETF all contribute to the challenges facing Bitcoin’s price movement.