Bitcoin discounts welcome "Double Eleven," will the "small bull market" continue?

Author: Frank, Foresight News

On November 10, Beijing time, within 45 minutes after midnight, Bitcoin, which had just broken through $38,000, reversed direction and plummeted, breaking through the key levels of $37,000 and $36,000, hitting a low of around $35,500. From the peak near $38,000, it took less than two hours to give back the gains made over the previous day. As of the time of writing, Bitcoin had rebounded to around $36,800.

Compared to Bitcoin, Ethereum, after the uncertainty surrounding the Cancun upgrade, saw an independent rally stimulated by the news that BlackRock registered an Ethereum trust in Delaware. After briefly following Bitcoin's decline, it continued to rise strongly. As of the time of writing, Ethereum even broke through the high of around $2,050 set the previous night, reaching a peak of around $2,130, just a stone's throw away from its yearly high.

According to Coinglass data, over $150 million was liquidated across the network within an hour after midnight, with a large number of high-leverage long positions being instantly wiped out. In the altcoin market, previously surging tokens like BLUR, SOL, LINK, and GAS all followed Bitcoin's short-term decline, dropping over 10%. As of the time of writing, these tokens had mostly rebounded to varying degrees.

Why Did Bitcoin Rapidly Decline After Rising?

Firstly, the driving factor behind Bitcoin's rise yesterday was still the expectation that a Bitcoin spot ETF would be approved. On one hand, CoinDesk cited informed sources stating that the U.S. Securities and Exchange Commission (SEC) has begun negotiations with Grayscale Investments regarding the details of converting the trust product GBTC into a spot Bitcoin ETF; on the other hand, Bloomberg analysts James Seyffart and Eric Balchunas noted that starting from November 9, there would be a small window during which the SEC could approve 12 pending Bitcoin ETF applications.

In addition to the ETF expectations, the news that the U.S. House of Representatives passed an amendment to prohibit the SEC from using budget funds to take enforcement actions against cryptocurrency companies may have further stimulated optimistic sentiment, causing Bitcoin's price to surge rapidly during the Asian and U.S. trading sessions.

However, it is also evident from the market that after Bitcoin first touched $36,000, both the magnitude and strength of the rise weakened. Additionally, the $38,000 level coincided with the fluctuation range from early last year to early May, which may have prompted many investors to take profits at this point. The concentrated selling actions, combined with the liquidation of long positions triggering continuous market sell orders, could be the direct factors behind the market's short-term plunge.

Market Optimism Remains, but Some Have Calmed Down

Recently, the FOMO sentiment in the cryptocurrency market has reached a peak. The Greed and Fear Index, based on parameters such as volatility, market trading volume, and social media activity, has hit a new high since November 2021. Even NFTs, which were almost "sentenced to death," have seen a noticeable rebound in trading volume and floor prices across various series.

It can be said that although Bitcoin experienced significant volatility early this morning, the current market sentiment is still not quickly extinguished, and various cryptocurrencies may still attempt to challenge new highs for the year. However, compared to the almost blind optimism of last month, investors need to be more cautious about potential risks in the coming months.

On the macro front, although Federal Reserve Chairman Jerome Powell's remarks after this month's Federal Reserve meeting leaned dovish, he still did not relent on the issue of "pausing interest rate hikes." Some Federal Reserve officials, including Barkin, still believe that interest rate hikes and balance sheet reductions are not yet complete. With the market almost unanimously expecting a pause in interest rate hikes in December, any unexpected events could have significant repercussions.

On the other hand, even if the current cycle of interest rate hikes by the Federal Reserve ends, it does not mean that rate cuts will occur in the short term, which implies that the policy will remain tight. This is not good news for the cryptocurrency market, which hopes for new capital inflows.

Returning to the market's most concerned Bitcoin spot ETF, when we habitually think that the approval of an ETF will definitely bring new funds to Bitcoin and the entire cryptocurrency market, JPMorgan has taken the lead in pouring cold water on this notion.

According to an exclusive report by The Block, JPMorgan analysts believe that the rise in cryptocurrencies has been somewhat "overdone." The analysts argue that even if the Bitcoin spot ETF application is approved, it may primarily attract investors in GBTC, Bitcoin futures ETFs, and publicly listed Bitcoin mining companies. Given that Canada and Europe already have Bitcoin spot ETFs but have attracted little investor interest, whether the U.S. Bitcoin spot ETF can truly attract new funds remains questionable.

Furthermore, the analysts also believe that the much-hyped expectation of Bitcoin's block reward halving has likely already been priced in. They stated that the "halving" is predictable, and as the block reward decreases, the rising mining costs will force high-cost miners to exit, thereby reducing total hash rate and increasing the profits of other miners. The market itself will rebalance without necessarily needing price increases to sustain the Bitcoin network's operation.

What Comes After the ETF and Halving?

The views of JPMorgan analysts are quite reasonable; while controlling risk does not mean that the upward trend will not continue in the short term, it can help avoid sharp declines. If the ETF benefits materialize, and the Bitcoin block reward halving is priced in without sufficient narratives to support the overall market sentiment, the gap in between could bring significant uncertainty to market trends.

Investors should note that most countries around the world currently have tight monetary policies, and the lack of incremental capital in the market will inevitably make it difficult to activate the risk market. I have previously mentioned in my analyses that the recent rise in U.S. stock indices like the S&P 500 has stemmed from the appreciation of stocks of leading companies within the index rather than a "broad-based" rally. For high-risk assets like cryptocurrencies, which lack a "fundamental" basis similar to stocks, any signs of a global macroeconomic downturn could likely make them the "first choice" for capital flight.