Bitcoin’s price experienced a 5.5% increase to $28,600 on October 2nd. However, this rally lost momentum as the launch of Ether futures exchange-traded funds (ETFs) failed to generate significant trading volumes. The recent comments from representatives of the United States Federal Reserve expressing concerns about a potential economic downturn also dampened investor sentiment.
Despite showing short-term strength by maintaining support at $27,200 on October 3rd and surging above $27,500 on October 5th, Bitcoin is facing three key challenges that indicate a lack of strong support. These challenges include weak spot market volumes, underwhelming derivatives performance, and uncertainty surrounding the approval of a spot Bitcoin ETF.
Macroeconomic forces affecting Bitcoin’s price
On October 2nd, U.S. Federal Reserve Vice Chair for Supervision Michael Barr stated that he expects economic growth to slow down due to higher interest rates restricting economic activity. He also noted that the full impact of the current monetary policy has yet to be realized. The market is currently divided on the possibility of another interest rate hike by the Federal Reserve in 2023, as indicated by the CME FedWatch tool.
On October 3rd, the real yield on U.S. 10-year Treasurys reached its highest level in nearly 15 years, at 2.47%. This increase partly explains the rise of the U.S. Dollar Index (DXY) to its highest point in 10 months. Additionally, the U.S. has become a more appealing investment destination compared to Europe and China due to its resilient economy and stronger growth prospects, according to Reuters.
Diminished trading activity for leverage longs
Bitcoin monthly futures typically trade at a premium to spot markets, reflecting sellers’ demand for more money to delay settlement. Ideally, BTC futures contracts should trade at a 5%-10% annualized premium, a situation referred to as contango, which is not unique to crypto markets.
However, the BTC futures premium has consistently traded below the 5% neutral threshold, indicating a lack of demand for leveraged long positions.
Additionally, spot trading activity on traditional exchanges has declined and reached levels not seen since late 2020. This decline signifies reduced participation by institutional investors.
It’s important to note that the decrease in trading volumes may be attributed to major U.S.-based trading firms, such as Jane Street Group and Jump Trading, distancing themselves from the cryptocurrency markets due to heightened regulatory scrutiny. Bloomberg reported that institutional investors find the market less appealing as a result.
Related: Bitcoin price drops its early week gains — Here is why
Decreased investor expectation for a spot BTC ETF
Investors have been anticipating the approval of a spot Bitcoin ETF by the U.S. Securities and Exchange Commission, which has contributed to Bitcoin’s 68% gains in 2023. However, the recent launch of Ether futures-based ETFs on October 2nd did not generate significant demand.
Furthermore, the Grayscale Bitcoin Trust, which could potentially convert into a spot Bitcoin ETF, continues to trade at a 19% discount compared to its Bitcoin holdings. This discount indicates a lack of confidence in the approval of a spot Bitcoin ETF, as investors would have the option to redeem their shares at par value following the conversion.
In conclusion, Bitcoin has been unable to surpass the $28,500 resistance level, and Federal Reserve representatives have warned about potential economic pressures. As a result, the short-term prospects of breaking above this resistance level appear unfavorable.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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