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Bitcoin: Boom To Gloom to Boom Again?

Corrections, in some case, can sometimes be looked at as a healthy cleansing. And this correction – even if it extends through the halving – might just be one of those.

Just when bullish sentiments were sky-high, the bitcoin market took a surprising turn…

After reaching a high of $73k last week, bitcoin fell to $62k (now sitting ~$67k) with sell pressures mounting over the weekend and into the week. The move once again reminding everyone that despite all the hype surrounding the supply crunch… anything can happen.

So, What Happened Anyway?

Explanations for the recent selloff range from softening ETF flows, a hedge fund getting blown up on a Microstrategy spread trade, to hesitation ahead of today’s Fed meeting. Japan also just raised interest rates!

…As almost always, there’s never one thing you can point to.

But for ease, we’ll chalk it all up to this: Anytime bitcoin hits new price discovery levels, the jitters also start to hit.

After months of neglect, people begin paying more attention to the markets (just ask Coinbase). And because almost everyone is technically in the money, investors, whales, and bag-holders alike are more prone to sell and take their profits.

That goes for long-time GBTC holders as well. On Monday, the fund witnessed its biggest outflow day on record, to the tune of $643 million, which certainly attributed to the onslaught. As a result, bitcoin witnessed its biggest 24-hour loss since Nov. 9, 2022 – the day FTX went bankrupt.

In the crypto world on Twitter, these people are referred to as those without diamond hands. But in all seriousness, this fear can have a cascading effect in combination with other liquidation events.

The Bad News

Bitcoin might need to find a new narrative.

After hitting records every week, Bitcoin ETF flows have begun to soften. Of course, we always knew that the huge inflows wouldn’t be sustainable, but we’ve now seen two days in a row of ETF outflows. Yesterday’s outflow number was the most since the ETFs launched in January.

It could be just us, but feeding off of BlackRock doesn’t seem like it will sit well for the bitcoin crowd much longer. The ETF demand pulled us out of the bear market and rewarded investors with a new all-time high – much sooner than anyone expected.

But should we expect the ETFs to be the catalyst that doubles bitcoin prices from here? Are ETF inflows all there is to be hyper-focused on?

Now, the most obvious narrative to focus on next is the upcoming halving.

But, as Glassnode reported, if sluggish ETF flows persist leading up to the halving – which investors have historically treated as a sell-the-news event, it could cause somewhat of a double whammy:

“As we approach the next halving, the market structure suggests that we could witness another significant correction. Such a correction would not only align with historical patterns but also serve as a reset, shaking out short-term speculative interest and setting the stage for the next cycle of growth.

This expectation hinges on several factors, including the continued influence of ETFs on the market. While their buying activity has provided substantial support for Bitcoin's price, there is a consensus that these inflows are not sustainable indefinitely. Should ETF flows begin to slow or reverse leading up to the halving, we may see a compounded effect on the market. The anticipation of reduced demand from ETFs, coupled with traditional halving psychology, could trigger a period of heightened volatility, with traders likely to adjust their positions in response to early signs of a shift.”

The Good News

For now, the correction seems to be over. Nobody is catching falling knives here.

After dipping below $62k on Tuesday, bitcoin seems to have found a new level of support, marking only a ~15% correction from all the carnage. In other words, investors have been through worse – way worse.

More importantly, only a small percentage of previously dormant bitcoin is now on the move. This indicates that most long-term holders remain unfazed and are not yet ready to divest, suggesting confidence in future value.

Corrections, in some case, can sometimes be looked at as a healthy cleansing. And this correction – even if it extends through the halving – might just be one of those.

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