Bitcoin’s Bearish Scenario Deemed Unlikely by Experts After Dip Below $42,000

Despite bullish sentiment preceding the approval of spot Bitcoin ETFs, the leading cryptocurrency fell nearly 15% after their launch—from $49,000 to $41,500.

On the evening of January 10, when the SEC approved all ETF applications, digital gold momentarily reached two-year highs, but declined after trading began the next day.

Simultaneously, the crypto market’s “Fear and Greed Index” dropped to 52, indicating moderate market sentiment.

According to Coinglass, $5.5 billion in positions were liquidated over the past week, with $4.4 billion in longs.

The correction of the leading cryptocurrency essentially confirmed analysts’ previous concerns about a “sell the news” scenario.

Causes and Consequences

Gleb Kostarev, former director of Binance in Asia and Eastern Europe, told ForkLog that the sharp decline was due to investors selling off positions they had opened in anticipation of the ETF approval, now taking profits.

“A bearish scenario in 2024 is unlikely; after all, the market has been in a downturn for almost two years, and it’s too early for a trend reversal,” Kostarev added.

Trader Vladimir Cohen noted that the crypto market had anticipated the arrival of spot Bitcoin ETFs for five years, and after BlackRock’s application, “rumors of imminent approval” heated up the market.

According to him, this narrative drove the leading cryptocurrency up by 80% to $46,000.

“Those wanting to buy Bitcoin had ample time and lower prices to do so [before the ETF launch]. The approval and subsequent sell-off confirmed the ‘sell the news’ rule. Major players had significant profits, and the market was sufficiently excited to sell coins acquired below $38,000,” Cohen emphasized.

He noted that the ETF approval is a bullish signal in the long run, as it creates “sustained deferred demand.” As the expert explained, fund issuers are not required to buy Bitcoin on the spot market immediately after selling shares. They already have reserves, and transactions typically occur over-the-counter, not directly affecting current prices.

“Bitcoin rose without significant correlations for over three months. Major players don’t buy at peaks. They will wait for more favorable prices. Therefore, a drop to $42,000 is normal, and I expect further declines. The halving factor will play its role, and the real bull run will likely start later, probably from the $30,000-32,000 level,” Cohen suggested.

According to Anton Toroptsev, regional director of CommEX in Russia and the CIS, the effect of the spot Bitcoin ETF was already priced into the asset:

“Rumors of the product’s imminent approval circulated since autumn. At that time, the asset traded at $27,000-28,000. The current rate is a 50% increase from those levels. Thus, the spot Bitcoin ETF has already positively impacted the coin’s price.”

Toroptsev expects less rapid growth of digital gold in the future, occurring as institutional capital gradually enters the crypto market over the long term.

The nearest growth driver is considered to be Bitcoin’s halving, but until then, investors will closely monitor signals from the Fed regarding U.S. monetary policy, the CommEX regional director noted.

“The Fed’s refusal to lower the key rate this spring could heighten stagflation risks—slowing economic growth amid high inflation. Against this backdrop, increased bearish pressure on the crypto market can be expected until mid-March,” the expert warned.

Shift to Altcoins

According to CoinMetrics, after the ETF approval, the correlation between Bitcoin and Ethereum decreased from approximately 0.8 to 0.7. This indicates that the price movements of the two assets have become less synchronized.

“Since the excitement around the Bitcoin fund launch has already played out, a capital shift into altcoins can be expected. Some has already moved into Ethereum, which is also gaining momentum due to the potential launch of an ETH-ETF in May 2024,” Toroptsev noted.

Kostarev pointed out that altcoins are only now beginning to show positive dynamics. For example, the price of Uniswap (UNI)—a top-30 token by market capitalization—is at its early 2023 level, so altcoins have “considerable room for growth.”

“The Fed also plans a gradual rate cut this year, which means more cheap money will enter the markets, some of which will inevitably flow into cryptocurrencies,” the expert clarified.

Cohen noted Ethereum’s lag behind Bitcoin in growth throughout 2023. However, after the ETF launch, there was a natural “shift from the overbought leading cryptocurrency to ETH, which has become more attractive for investment,” the trader added.

“A new narrative of spot Ethereum-ETF adoption has emerged. Moreover, Blackrock CEO Larry Fink has started promoting this topic. Therefore, ETH is likely to outpace BTC in growth over the next three to four months. And when Ethereum grows amid Bitcoin’s declining dominance, it sets the stage for the long-awaited altseason,” he concluded.

Analysts at 10x Research have highlighted a divergence between the price of the leading cryptocurrency and the RSI indicator, which may indicate risks of further Bitcoin decline to dynamic support at the $38,000 level.