Bitcoin faces a potential downturn to $32,000 if a spot ETF is approved, triggering a ‘sell the news’ scenario, warns data provider CryptoQuant.
Key Takeaways
- Bitcoin could experience a correction to $32,000 post spot ETF approval, a scenario known as “sell the news.”
- “Sell the news” refers to price drops after positive events as traders exploit crowded long positions, leading to liquidations.
- Short-term Bitcoin holders with high unrealized profits, historically preceding corrections, may impact the price surge.
- CryptoQuant estimates a potential fall to $32,000, reflecting the realized price of short-term holders.
Bitcoin’s Potential Correction After Spot ETF Approval
Bitcoin faces the prospect of a downward correction to approximately $32,000 in the aftermath of a potential spot ETF approval, as warned by data provider CryptoQuant.
The phenomenon, known as “sell the news,” is a market pattern where prices surge before a positive event but drop shortly afterward as traders exploit crowded long positions, triggering liquidations.
Dynamics and Short-Term Holder Behavior
The approval of a spot ETF is generally perceived as a positive development for Bitcoin, as it attracts institutional investors and stimulates demand for the cryptocurrency. However, CryptoQuant cautions that historical patterns indicate the likelihood of a price correction.
The “sell the news” dynamic is driven by smart traders capitalizing on the buildup before an event, causing those leveraging positions to exit or face liquidation when prices move against them.
Short-term Bitcoin holders, currently experiencing high unrealized profit margins of around 30%, are highlighted in CryptoQuant’s note to CoinDesk. This scenario, historically preceding price corrections (indicated by red circles), suggests a potential impact on the upcoming price surge.
Estimation of Potential Price Fall
CryptoQuant estimates that Bitcoin’s price could decline to $32,000, aligning with the realized price of short-term holders. This figure represents the average price at which these holders bought or sold Bitcoin, indicating a potential correction in the wake of the spot ETF approval.
Bitcoin could dip to $32,000 post spot ETF approval
— Crypto & Bitcoin Page (@cryptopagex) December 30, 2023
Bitcoin (BTC) could face a potential downward correction to $32,000 in the next month if a spot ETF is approved, triggering a "sell the news" scenario.
This occurs when the prices, leverage, and sentiment of an asset increase… pic.twitter.com/FtuQYvlnpD
Advice from Capriole Investments
Capriole Investments advises adopting “conservative portfolio management” in anticipation of the possible approval of a spot ETF. In a blog post, the firm notes the increased risk of holding Bitcoin compared to a few weeks ago, citing the cryptocurrency’s significant surge in value and the anticipation of ETF approval around January 10.
To Conclude
While the approval for a spot Bitcoin ETF is anticipated to be a positive catalyst for Bitcoin, historical market dynamics and the concept of “sell the news” suggest a potential correction to $32,000. Short-term holder behavior and advice from financial institutions caution investors to exercise conservative portfolio management in light of the increased risk associated with holding Bitcoin.
