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| FILE PHOTO: Bitcoin's $32,000 drop looms if ETF approval hits. REUTERS/Benoit Tessier/File Photo |
Bitcoin (BTC) could face a downward correction to around $32,000 in the next month, if a spot ETF gets approved. This scenario is called a “sell the news” event, which is common in capital markets, according to CryptoQuant.
“Sell the news” refers to how the prices, leverage and sentiment of an asset increase before a positive event, but then drop soon after. This happens because smart traders take advantage of the crowded long trade, and force those who use leverage to exit or get liquidated as the price moves against them, CoinDesk reported.
A spot ETF approval is seen as a positive event for Bitcoin, because it would attract more institutional investors, and create more demand for the cryptocurrency. However, CryptoQuant warned that this could also trigger a price correction, based on historical patterns.
Short-term Bitcoin holders could impact price surge
“Short term Bitcoin holders are experiencing high unrealized profit margins of 30%, which historically has preceded price corrections (red circles),” CryptoQuant wrote in the note to the CoinDesk.
“Moreover, short-term holders are still spending Bitcoin at a profit, while rallies usually come after short-term losses are realized,” the note states.
CryptoQuant estimated that the price of Bitcoin could fall to $32,000, which is the realized price of short-term holders. This means that this is the average price at which they bought or sold Bitcoin.
Another firm, Capriole Investments, advised that “conservative portfolio management” is advisable before the possible approval of a spot ETF. Capriole wrote in a blog post that the risk of holding Bitcoin is higher now than a few weeks ago.
“With Bitcoin up over 60% since ETF mania began a few months ago, and with every man and his dog on X.com expecting an approval on or around 10 January, we must start to anticipate much larger volatility events (up/down) in this region. Risk today is substantially higher for long Bitcoin positions than it was just a few weeks ago,” Capriole wrote.
Bitcoin has experienced “sell the news” events before, in 2017 and 2021. In 2017, Bitcoin reached $20,000 after the CME launched BTC futures, but then declined in the following months. In 2021, Bitcoin hit $65,000 after Coinbase went public, but then also lost value in the next months.
Bitcoin is trading at $42,450 at the moment, after starting the year at $16,000. The daily trading volume is stable at $80 billion, according to CoinMarketCap.
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