Bitcoin falls below $43,000, and may continue to be “smashed” in the short term

As the first batch of U.S. spot Bitcoin ETF products went public last Thursday, Bitcoin briefly hit a two-year high of more than $49,000 before quickly falling back to a local low of $41,500 early Monday. It is currently consolidating around $42,600, confirming the "sell the news" warning issued by CryptoQuant analysts in December last year .

“ Selling the news ” is a term in capital markets that generally refers to asset prices, leverage, and sentiment rising before a bullish event, but plummeting soon after the event.

“Short-term Bitcoin holders have unrealized profits of up to 30%, which historically precedes price corrections (red circles in the chart below),” CryptoQuant wrote in a report at the time. “In addition, short-term holders are still profiting by using Bitcoin, and rallies usually occur after short-term losses are realized.”

Bitfinex analysts believe that the sell-off was led by short-term holders who had an average purchase cost of around $38,000 to take profits.

Judging from historical trends, "selling news" incidents are common. After CME listed BTC futures in 2017 , BTC once hit a local high of $20,000. In 2021, BTC hit a peak again, reaching $65,000 after Coinbase completed its IPO, and then turned to decline.

“The cryptocurrency market has shifted to the next narrative, with the market beginning to focus on the possibility of future approval of an Ethereum spot ETF , ” Citi analyst Alex Saunders explained to clients in a report.

Some experts said Bitcoin was hit because redemptions by Grayscale investors weighed on the market. Bernstein analysts Gautaum Chhugani and Mahika Sapra said in a report on Monday that the market may have to absorb some of the GBTC outflows.

GBTC's first-day trading volume exceeded $2.3 billion. So far, Grayscale has outflowed a total of $579 million, but due to settlement lags, accurate data will not be released until tomorrow. Bernstein reported: "It is fair to assume that the new ETF will continue to absorb GBTC redemptions. Therefore, it may take longer for new incremental inflows to begin to affect new demand and underlying Bitcoin price momentum."

One month left until Bitcoin crashes?

Speaking of the subsequent trend, well-known trader and analyst Rekt Capital predicted the possible trend chart of BTC before the halving in April. He said that any last-minute rise will be foreshadowed about two months before the event - giving the bears enough time to "dump the market." Rekt Capital predicts that if BTC will have a deeper correction in the pre-halving period (orange in the figure), it should happen in the next 30 days or so.

Analyst Matthew Hyland believes that the spot market generally lacks sufficient depth to ensure stability in the short term. At the same time, considering how long it may take for BTC/USD to regain support after a 15% plunge last week, the recovery may take more than a month. He said: "Bitcoin may consolidate for a while. The past 4 times we have seen so much short volume on weekly trading volume; the price has been sideways for at least 3-4 weeks. If the dominance is broken, this environment will favor Ethereum + altcoins."

"Bitcoin may be vulnerable to profit-taking selling pressure in the short term, but downside risks may be limited given low U.S. Treasury yields and the market's optimism about an early rate cut by the Federal Reserve ," analysts at Japanese cryptocurrency exchange bitBank said in an email.

bitBank said it sees the psychological level of $40,000 as support for Bitcoin prices in the near term. On the other hand, analysts at 10x Research, led by Markus Thielen, said in a report on Monday that they expect prices to find support in the low $38,000s.

Meanwhile, FxPro market analyst Alex Kuptsikevich believes that considering Bitcoin's performance of more than 150% in 2023, $40,000 would be "the range of a typical correction."

CryptoQuant analysts added that Bitcoin price could drop to $32,000, which is the realization price for short-term holders.

Long-term outlook remains largely bullish

Given the demand for ETFs from institutional players, the long-term outlook for Bitcoin remains largely bullish.

Henry Robinson, founder of crypto fund Decimal Digital Group , said: "Bitcoin ETFs will bring changes to the industry and provide more opportunities for traditional wealth management - their launch will bring new investment opportunities for pensions, endowment funds, insurance companies, sovereign wealth, retirement plans, trusts, etc."

Bitfinex analysts believe that the market may still see adjustments and pullbacks in the first half of this year. Despite the selling pressure, three factors will continue to support the price of Bitcoin. First, the ERC-20 stablecoins on the exchange have increased significantly, indicating that market speculation and investor confidence have increased. Historically, the expansion of stablecoins has led to increased purchases.

Second, open interest in CME Bitcoin futures contracts continues to remain high, hitting a year-to-date high just before the ETF approval announcement and remaining high even after the event. This suggests that sophisticated investors continue to have interest in Bitcoin, albeit through derivatives rather than direct holdings.

The third support point is that long-term holders remain firm, highlighting that the market is resilient but vulnerable to short-term fluctuations.