Crypto Market Analysis: When We Will Get A Pullback
SEC denies ETF approvals?
Initially, I drafted this article just before the market flush dump. I was disappointed I would not be able to publish it because it is no longer relevant. However, now I realize the dump actually gives a new perspective on where the crypto market is going in the first quarter of 2024.
We got more insight.
Prices cannot go up forever. It’s easy to feel like that when you see your favorite crypto assets keep printing green candles. But continued upward movement is not healthy at all, it’s not sustainable and even dangerous. Not to mention, it doesn’t bode well with our sanity too. In the back of our heads — for experienced traders — we know something is going to happen after the top. Leverage needs to be flushed, situation must be conditioned in a way so traders feel safer again to make their. No sane person would long the top.
Pullback doesn’t mean we plunge in bear. So this is not a pessimistic article, but rather a realistic one. It’s also in line with my 2024 thesis: the crypto cycle is getting shorter. After 3 months of continuous rally, we are due for a break.
What the market has shown us:
Alts are struggling at the top
It’s been a while since we got the news of Solana reaching a new high, and so it is with other outperformers like Celestia. This is despite Bitcoin trying to trigger excitement by reaching a $45k mark on the new year's day. What is the market trying to communicate? Simple, we have run out of buyers.
Bitcoin itself is also struggling
Despite breaking into the $45,000 price mark, traders are hesitating to jump in. The volume was unconvincing anyway — it was a low-volume pump on a holiday. You can also tell about this lack of enthusiasm by looking at open interests which has shown slowing volume ever since the Christmas day.
People are feeling less speculative. While some rotate to alts, others prefer to hold spot positions with no leverage involved. You can see the anecdotal manifestation of this ‘just spot’ stance all over Twitter. Spots holding has been people’s talking point for weeks now.
The thing is, without people leverage trading, we will no longer enjoy insane green candles on the dailies. The market will move slower, therefore the bullish momentum and excitement gradually diminish.
ETH pumping
In the very last days of 2023, Ethereum finally prints its yearly high. When Ethereum pumps, you gotta be cautious. ETH pump interestingly always marks the top. It happened in 2021 when ETH reached $4600 briefly, why would things be any different now?
Why does this happen? ETH is notoriously the underperforming asset in every rally. So when it suddenly pumps, it means speculators are done playing with other outperforming alts and memes. Other alts are too overextended and they’re looking for assets not pumped yet, and they went for ETH. Basically, ETH gets its turn at the last moment, just before Bitcoin breaks and brings the market down with it.
Bitcoin ETFs
The ETF was the reason we got a bullish cycle, and soon it may be the reason we plunge back into a (hopefully temporary) bear.
The whole of CT is seemingly in a consensus. ETF approval could be a sell-the-news event. At this point, it has become a self-fulfilling prophecy.
Updates from the ETFs:
The cash model with the ETFs.
This news was quite old (as in, a few weeks old.) Regulators require the ETFs to be cash-based. It means when you purchase the ETFs, the fund will buy you BTC and hold it in custody. When you want to sell the ETF, they will sell BTC and hand you cash. So, you won’t be able to deposit and withdraw in BTC. All proceeds would be done in cash.
This is not a beneficial mechanism for us because there will be a lot of buying and selling and what we want is a supply shock, where the BTC will be locked in the ETFs and reducing supply — therefore bullish.
Will the ETF get delayed?
Even clouded with sell-the-news risks, a Bitcoin ETF approval can still be profitable. At least there’s a chance of BTC to pump for the last time, or even a sustained one just like it was with the Ethereum merge. (It becomes buy at the news event.)
However, the scarier scenario would be if the SEC delays the approval. Even by another month, delays set a bad precedent. It lowers the morale and rips the trust people have in the ETF=bullish narrative. The next ETF announcement and re-announcements would not reflect well into the price as it was last October-November. The enthusiasm has gone.
My hunch says that the ETF will only be approved when people least expect it. Rumors already circulating how the BTC pump we’ve been getting does not bode well among regulators. They get another proof of how the asset is too volatile for TradFi investors and it could lead to delay or even disapproval. Adding to this bad news, there was also a CZ/Binance probe and court appearance that will take place in January.
Fake news of non-approval
We have just seen how ETF-related negative news would be received by the market with yesterday’s flash dump. The trigger for the crash was the following news on X that later was proven to be unsubstantial.
This is not news, just an opinion, yet the reaction was kinda overblown. Imagine what the reaction would be had it been a real one.
It shows how the recent pump has been standing on shaky, fragile ground. (I have been concerned about how ETFs are the only narratives Bitcoin got going on.) We need fresh and stronger narratives, folk.
January is typically slow
It's worth to know how the market typically behaves in the first quarter of the year, especially in January. This applies both for TradFi and crypto, January is typically the month where we ‘test the vibe.’ Figuring out what the year would be. So, everyone would rather be cautious and not take much risks.
The fact that 2023 was a big up year is crucial because we need to find out whether the trend will continue into the next year. Honestly, things have not been starting well in 2024 for the world. The blockade of the Red Sea threatens the supply chain and if we get more inflation it will discourage the Fed from cutting rates this year. It won’t translate well into the financial market. The outlook is pretty grim. And add to that, there’s election, US involvement in more wars, and US debts to consider.
The pullback after a massive rally typically will be surrounded by extreme volatility. It’s another thing to note and a caution to stay safe.
Prices won’t just go straight down. People will revenge trade. The past 12 hours after the flash dump (Jan 3) have shown this tendency. It’s a normal reaction especially when we just got the largest liquidation in months, according to data by Coinanalyze.
