Bitcoin faces challenges amidst U.S. dollar’s resurgence and ETF uncertainty

The cryptocurrency trading world is currently facing a turbulent period as Bitcoin prices continue to plummet, leaving traders and investors anxious. Recent developments, including the launch of spot Bitcoin exchange-traded funds (ETFs) and a strengthening U.S. dollar, have added to the uncertainties in the market.

The U.S. Dollar Index (DXY), which measures the performance of the U.S. dollar against major foreign currencies, has seen a significant rebound, surging by 2.71% since its low on December 27, 2023. This resurgence has been attributed to promising economic data from the United States, with indicators such as retail sales, the Philly Fed Manufacturing Index, and weekly initial jobless claims surpassing expectations.

Data from the U.S. Census Bureau revealed a 0.6% growth in December 2023 retail sales, exceeding the projected 0.4% and the previous period’s 0.3%. Additionally, the recovery of U.S. yields across various maturities is in response to diminishing expectations of the Federal Reserve considering interest rate cuts in March.

From a technical standpoint, the U.S. Dollar Index appears poised for a further increase of more than 1.12%, driven by the formation of a classic V-shaped recovery pattern. Should the DXY breach its neckline at 104.56, the possibility of an extended recovery towards 107 in the coming months becomes more likely.

Spot Bitcoin ETFs and Grayscale outflows

The launch of spot Bitcoin ETFs on January 11 has not yielded the expected price surge in Bitcoin. This disappointment can be partially attributed to the consistent outflows from the Grayscale Bitcoin Trust (GBTC), which have pressured Bitcoin’s price. 

In response to the conversion of GBTC into a spot ETF, Grayscale has liquidated a substantial amount of Bitcoin holdings, resulting in nearly 38,000 BTC leaving GBTC since the ETF’s launch.

On January 12 alone, Grayscale witnessed outflows amounting to $484 million as GBTC holders exercised open redemption options. Economist and gold advocate Peter Schiff pointed out that despite the approval of spot Bitcoin ETFs, Bitcoin’s price has not witnessed significant gains, primarily due to the ongoing outflows from Grayscale’s GBTC product. Although total inflows into the ETFs were substantial, their impact on the overall Bitcoin market has remained limited.

Analyst predicts correction for Bitcoin

Independent market analyst Ali has observed Bitcoin’s price movement within an ascending parallel channel since late 2022. According to Ali, Bitcoin’s current correction results from rejection from the upper boundary of this channel, situated at $48,000. The analyst anticipates a retracement in Bitcoin’s price, projecting a decline to the lower boundary at $34,000.

In contrast to the prevailing uncertainty, market intelligence firm Santimet has expressed optimism regarding the long-term impact of spot Bitcoin ETFs. While acknowledging the initial excitement and hype surrounding ETF approvals, Santimet suggests these developments might have contributed to a local crypto market peak. 

The firm raised the possibility that the market’s reaction to these approvals may have already been factored into prices, leading to a shift in narrative towards skepticism, potentially associated with terms like “scam” or “ripoff.”

Santiment noted that following a 16.9% drop in Bitcoin’s price from $49,000 to $40,600, sentiments around ETFs might evolve into FUD (fear, uncertainty, and doubt), potentially prompting a series of sell-offs among inexperienced traders.