Bitcoin Showing A “Good Risk/Reward Setup,” ETF to Play A “Large Part” in the Market Sentiments

Now that steam has been taken out of the “frenzied” rally, where low spot volumes added to the carnage, crypto prices are back on the move with the fear of Fed withdrawing liquidity dangling on the horizon.

After Tuesday’s flash crash, Bitcoin is now hovering around $45k and $46k and Ether between $3,400-$3,500.

The rest of the crypto market is also back to moving upwards, with Raydium (RAY), Fantom (FTM), Elrond (EGLD), Mina Protocol, Harmony (ONE), and Solana (SOL) leading the gains and sending the total market cap back again past $2.2 trillion.

As we reported, the funding reset after the pullback is healthy for the market and sets a base for further leg up.

After all, Standard Chartered analysts, as we reported, have given a target of $175,000 in the longer term and see Bitcoin to peak around $100k by the end of this year or early next year with the leading cryptocurrency sharing “characteristics with currencies, commodities, and equities.”

As for what caused this crash, which, like always, was exacerbated by the liquidations of leveraged traders, Galaxy Research stated that it was a big BTC seller who dumped on the over-the-counter (OTC) market that led to the largest forced futures liquidations since May 19, 2021.

It is also worth noting that low spot volumes added to the carnage. On Tuesday, BTC liquidations were 34% of total traded spot volume across major exchanges versus the 1y daily average of 12%, the largest since April 18 when liquidations were more than 90% of traded spot volume, which was a day of extreme volatility and an outlier in the dataset.

Meanwhile, ETH liquidations were 23% of total traded spot volume across major exchanges versus the 1y daily average of 8%.

Macro Factor On The Horizon

According to Asian trading firm QCP Capital, it was “strange behaviour for a bullish market.”

“The outsized move seems to have been triggered by regulatory fears, taking the steam out of the “frenzied” rally,” it said. The rally was frenzied in the sense that retail was leveraged all-in on the alts, pushing the funding rates on some of the major alts’ through the roof and deep disbelief that this rally could fail.

Macro factors, however, are not playing a part yet, with S&P still climbing higher, which could change towards Q4 when the FOMC starts to taper.

“Given how far asset prices have diverged greatly from the real economy, our fear is the potential speed of the mean reversion once the Fed withdraws liquidity.”

In the meantime, the US dollar index is trading at 92.48 while the euro gained 0.2% to trade at around $1.1837 as the European Central Bank kept its monetary policy unchanged on Thursday but slowed down the pace of net asset purchases.

Interest rates will remain at their current lowest levels until inflation reaches 2%, reiterated ECB. In August, Eurozone inflation rose to a decade high of 3%, while their own forecasts are currently projecting a spike in inflation this year to 1.9% due to temporary factors before falling to 1.5% and 1.4% in 2022 and 2023, respectively.

ETF to Play A Large Part in Sentiments

Regulator fears emerged in the US in the form of the SEC preparing to sue Coinbase for its lending product. However, with the expectations rising that we may get a Bitcoin ETF soon, industry experts see it happening by October or November, which may help prop Bitcoin prices.

Recently, SEC Chair Gary Gensler signaled openness to futures backed Bitcoin ETF; since then, seven firms have applied for the same.

But Michael Sonnenshein, CEO of Grayscale Investments, which is working on converting its close-ended Grayscale Bitcoin Trust into an ETF, said that “it would be shortsighted of the SEC to allow a futures-based product into the market before a spot product.”

According to Sonnenshein, both the products should be allowed into the markets at the same time, and it should be left to the investors to choose what they want. He further said that if a futures-based ETF comes before GBTC is allowed to convert to an ETF, it can harm investors who have exposure to GBTC inside mutual funds and retirement accounts.

“Going forward, it is clear that news around the ETF will continue to play a large part in the overall sentiment,” said QCP Capital.

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