On January 4th this year, bitcoin prices recoiled by as much as 9.2% after Matrixport said the SEC (Securities and Exchange Commission) would reject all pending spot bitcoin ETF applications. According to the researchers, “at least $14 billion of extra fiat and leverage has been deployed into crypto” since September 2023. Of that sum, “$10 billion might be related to the ETF approval expectation”, which will probably not materialize since the applications are all missing a crucial element.

Many analysts have pointed out that the bitcoin scenario following an SEC green light could also be fairly brutal. Much of the 172% gains for the coin over the course of 2023 were pegged on SEC approval. To a large extent, then, the upside to bitcoin prices from SEC approval has already been baked into prices. The unrestrained bullishness we’ve been seeing smacks of “speculative excess” for Sean Farrel of Fundstrat Global Advisors.

The crypto inflows have also been relying on a dovish monetary environment to be provided by the Fed this year. If, however, we see traders lose faith in a dovish future, the carpet could suddenly be pulled from underneath bloated token prices, leaving them to fall a long way. That long way could be as high as 40%, in the opinion of Maelstrom’s Arthur Hayes.

But is there a realistic scenario depicting a bitcoin surge in the next few months? Or is the upside more of a long-term one, involving gradual increases in capital reaching crypto from institutional sources? Take a couple of minutes with us to catch up before doing your own CFD bitcoin trading.

Very Very Bullish

Kraken’s Thomas Perfumo is not wishy-washy about the projected results of spot ETF approval. “We have what we think is the soundest currency in existence”, he humbly suggests, and “we’re very, very much bullish”. This conclusion is based on his assessment that trillions of dollars in US assets are available to gravitate toward such an ETF, which would have the appearance of greater legitimacy than many other crypto assets. This is a reason, of course, for long term rather than short term bullishness. He adds, though, that the bitcoin halving event planned for April this year is likely to inject further momentum into prices, especially since it will draw bitcoin’s inflation rate below 1%. These events cut in half the rewards bitcoin miners receive for validating blockchain transactions, which slows down supply of the coin, and can therefore tend to elevate prices.

Very Very Cautious

In spite of Perfumo’s unbridled celebration of spot ETFs, JP Morgan are cautious on the sector for 2024. Another cautionary voice is that of Van Eck’s Gabor Gurbacs, who believes people are prone to “overestimate the initial impact of US bitcoin ETFs”. It has happened more than once before that bitcoin has surged in the build-up to SEC approval of futures ETFs, only to set itself up for a major crash in the weeks that followed. For instance, in the three days preceding approval of the first bitcoin futures ETF, token prices climbed by 15% but, a little over a month later, they descended into a deep bear market that lasted over a year. In our case, it should not be forgotten that the macro-economic climate raises a big question mark over digital assets, with the economies both in the US and China showing signs of fatigue.

Glancing Down the Road

Arthur Hayes points out another reason to brace for a crypto correction within the next few months, namely that American banks are presently facing risks that look set to coincide with bearish market activity in March. “I am preparing”, he says, “for a vicious washout of all the crypto tourists in March of this year”.

Hayes expects the Fed to cut interest rates at their March-20th meeting, but it’s worth thinking twice about the impact such a move would actually make. Historical data indicates that, when the Fed kick off a dovish period, its initial stages look a lot like a recession. Even if rates are cut, don’t expect a magic wand to come down and raise risk assets to the heavens.

We’ve seen plenty of reasons to brace for a considerable correction in bitcoin prices within the next three months, whether or not the SEC warm to spot ETFs. You can always take advantage of short-term price movements, whether they’re up or down, when your bitcoin trading is done in the form of CFDs. At iFOREX Europe, you can trade CFDs in the price fluctuations of hundreds of assets, from cryptocurrencies to commodities to forex pairs. Visit the iFOREX Europe website to find out more about their unique trading platform.

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