At time of writing, Bitcoin has dropped below $39,000 USD. The last time that BTC was available at this price was roughly 6-months ago. With BTC being range-bound in the low $40,000’s for an extended period, many were hoping that the top digital asset would break upwards – bringing the broader market with it.
Unfortunately for Bitcoin bulls, this was not the scenario that played out. The following are a few factors from the past week which allowed for bears to regain control of the market.
An Expected ETF Denial
Did anyone actually expect for the Securities and Exchange Commission (SEC) to approve a Bitcoin based spot-ETF? Unsurprisingly, a proposal for such a product – which was put forth earlier in 2021 by SkyBridge – was yet again denied Jan. 20th.
Despite pleading its case, pointing to approvals of similar products in nations like Canada, companies acquiring BTC within treasuries, and more, the SEC was simply not receptive. Citing all-to-familiar reasons, the SEC indicated that its denial was based on a lack of fraud prevention and market manipulation.
While there is still a widespread belief that the SEC will eventually approve a BTC spot-ETF, it is beginning to look like 2022 may not be the year for it. For the time being, BTC investors looking to gain access to the asset through the stock market will need to do so through Futures-ETFs, through proxies like MicroStrategy, or in neighbouring nations like Canada.
Potential Russian Ban
While the SEC was busy denying the aforementioned ETF application, the Central Bank of Russia (CBR) took its own shot at BTC, and digital assets as a whole. In a newly released consultation paper titled ‘Cryptocurrencies: Trends, Risks, and Regulation’, the CBR speaks quite harshly of the sector, with the following as only a few of its reasons why.
- Illicit use
- Limited use-cases
- Resembled a pyramid scheme
- Threat to financial security
- Lack of regulation
Based on these beliefs, the CBR put forth multiple proposals which it hopes solves the issue at hand. The CBR states that,
‘In order to mitigate threats associated with the expansion of cryptocurrencies, the Bank of Russia proposes the following amendments to the Russian legislation:
- Establish liability for the violation of the statutory ban on using cryptocurrencies as a mean of payment for goods, works and services sold and bought by Russian residents, whether legal entities or individuals.
- Prohibit the organization of the issue and/or the issue and the organization of circulation of cryptocurrencies (including by cryptocurrency exchanges, cryptocurrency exchange offices, and P2P platforms) on the territory of the Russian Federation and establish liability for breaching this ban.
- Prohibit financial institutions’ investment in cryptocurrencies and related financial instruments, as well as the use of Russian financial intermediaries and Russian financial infrastructure to conduct cryptocurrency transactions, and stipulate liability for violating this ban.’
While commentary such as this coming from a central bank may strike fear in investors, the CBR is most definitely bold in its stance. Over the past few years the world has watched as China attempted to ban assets like Bitcoin on various occasions. All this managed to do was expedite the growth of DeFi, and did little to actually diminish interest in digital assets. How will Russia achieve what China could not?
Although there are no talks of bans within the United States, events within the nation have most definitely played a part in recent market activity. With inflation running rampant, the Federal Reserve has indicated that over the course of 2022 a withdrawal of economic stimulus can be expected, alongside as many as 5 hikes to interest rates.
Such actions typically affect risk-asset negatively, as investors swim for safer waters during turbulent times. While the narrative may one day change, Bitcoin still resides under the banner of a risk-asset, and is reacting accordingly.
Aside from regulatory and economic influences, Bitcoins price decline overnight (roughly -10%) may be a result of options expirations totaling roughly $580M.
While yesterday began on a high note, with BTC sitting confidently around $44,000, a close below $41,000 meant a sizable payday for bears – which is exactly what happened. Keep in mind that if bears were able to successfully manipulate the market to such an extent, ensuring that it closed the day below $41,000, maybe the SEC has a point in its reasoning for continued BTC spot-ETF denials.
As a result of this price actions, various exchanges have noted significant liquidations with Binance leading the way at $173 million.
Just a Precursor?
Keeping each of the aforementioned events in mind, the question on everyone’s mind is simple – Is the worst over? Or is the recent price action simply a precursor of what is yet to come?
Despite its rises and falls being more pronounced than most, Bitcoin and the digital asset market are not alone in their recent struggles. If looking for some form of solace, just look at tech stocks – Netflix (NFLX) has plummeted 45% since its all-time-high was reach in November. While there may be more pain ahead for digital assets, a rebound of more traditional markets (and maybe a bit of good news along the way) could do wonders for current market sentiment.