Bitcoin Pulls Back Before Next Leg Higher As ETF Euphoria Fades
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Bitcoin slumped under $60,000 today to as low as $58,184 as the euphoria around the launch of the US’s first bitcoin ETF fades.
Market participants will have a sense of deja vu about this latest sell-off, hoping that it will not turn out to be a repeat of the December 2017 start to the bear market that some blame on the introduction of the CME and CBOE bitcoin futures products.
The Bitcoin ETF launches by ProShares and a second from Valkyrie are based on the CME bitcoin futures contract.
Some will likely see the current sell-off as a near-term entry point to buy bitcoin. There are however a number of coins bucking today’s downdraft.
Shiba Inu bucks trend to march higher
Meme coin favourite Shiba Inu is trading around 37% higher at $0.0000655.
Polygon, Aave, Helium, Safemoon and Enjin are all in the green at the time of writing and DEX aggregator and 1inch is up 36% at $5.49.
Cardano, Uniswap and Avalanche are among some of the hardest hit altcoins. Old favourites Tezos and EOS were both down by double figures, off 12% and 10% respectively.
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“Bitcoin needs to cool off”
“I’m not surprised Bitcoin hit a wall at $67,000, having passed the April high, given the speed of the move from $30,000 in July. Bitcoin needs to cool off before it embarks on its next leg up,” said Antoni Trenchev, managing partner and co-founder of Nexo, a crypto lending platform.
That seems to suggest we are not seeing the opening salvos of a return to a bear market, but instead some blowing off of the froth from the FOMO-driven buying that took bitcoin up to new all-time highs above $67,000.
If bitcoin can finish today’s US session back above $60k, that will probably be taken as a confirmation that we are not witnessing a major correction.
Funding rates hinted at coming sell-off
UK-based trader Glen Goodman predicted today’s sell-off on the basis of the high levels of the funding rate – the cost of holding long positions in perpetual futures.
Coindesk reported a week ago that funding rates were at six month highs of 0.06%, according to data from Bybt. The rate is calculated every eight hours by the exchanges.
Funding rates have now dropped back, perhaps providing more solace for those who may have bought near recent tops.
Funding rates for Binance (by far the biggest player) can be found here. Rule of thumb – when funding rates get above 0.1% for many cryptos, then be very worried. Rates are now back down to a tenth of that rate.https://t.co/0R1YlavyQk
— Glen Goodman (@glengoodman) October 27, 2021
The build up of leverage available to retail traders in crypto markets is contributing to today’s volatility.
“The market has been leveraged long for a few weeks, so there has been that overhang in positioning,” Jonathan Cheesman, head of over-the-counter and institutional sales at crypto-derivatives exchange FTX, told Bloomberg.
