Bitcoin’s recent decline has made headlines as it plummeted 28% from its October peak of $126,000, edging closer to a crucial support level associated with exchange-traded funds (ETFs). Currently, Bitcoin is trading just above the $90,000 mark, at approximately $89,900, after dipping as low as $84,600 earlier in December.
This shift comes as U.S. spot Bitcoin ETFs collectively hold Bitcoin valued at about $117.67 billion, which constitutes roughly 6.55% of Bitcoin’s total supply. This substantial holding is seen as an important structural bid that could provide support for the cryptocurrency, particularly as it nears the ETFs’ average cost basis around $83,000. Historical data from Glassnode indicates that Bitcoin has previously shown resilience at similar cost basis levels, with corrections exceeding 30% followed by reversals that emerged from this support zone.
Traders are particularly focused on the upcoming Federal Open Market Committee (FOMC) meeting, scheduled for Wednesday, as market speculation suggests a potential quarter-point rate cut. Analysts are weighing the implications of this decision on Bitcoin’s market trajectory. The CME’s FedWatch tool currently indicates that while the market anticipates a rate reduction on Wednesday, it does not expect another cut until June 2024, unless additional economic indicators suggest a need for further loosening of policy.
Throughout 2024, negative weekly ETF net inflows have been observed alongside significant price corrections. Similar patterns are appearing as the current net inflows for Bitcoin ETFs also show a downward trend since early December, fueling concerns about potential market stability.
Shivam Thakral, CEO of BuyUCoin, emphasized that Bitcoin sits at a crucial support level and that historical trends suggest a favorable risk-reward scenario. However, he highlighted that any sustained bounce back in price is contingent upon renewed ETF inflows and macroeconomic stability in the coming weeks.
Thakral expressed optimism regarding a “growth-supportive cut” from the Fed, arguing that such a move could enhance the likelihood of a recovery for Bitcoin, reinforcing the idea that it often finds a bottom around the ETF cost basis. Conversely, he cautioned that if the Fed adopts a hawkish stance in its forward guidance, the potential for a rebound could diminish significantly.
As the cryptocurrency market navigates these developments, all eyes remain on the Federal Reserve’s decisions and their broader impact on Bitcoin’s price and overall demand dynamics within the ETF landscape.
