in Key Takeaways
Although crypto markets have always been characterized by unpredictable and often extreme price swings, the first days of 2024 have been especially turbulent, with major coins witnessing volatility levels not seen in months.
Between the looming Bitcoin (BTC) halving event and the anticipated approval of spot crypto ETFs in the US, the coming months could well exacerbate the trend and many traders expect choppy waters in the months ahead.
Between 1 and 2 January, the world’s preeminent cryptocurrency surged around 6% overnight, surpassing $45,000 per coin for the first time since April 2022.
Having made significant gains in the previous two days, on Wednesday morning, the price of BTC came crashing back down. It plummeted around 10% from more than $45,000 to a little over $40,000. As other coins followed suit, the global crypto market cap shrunk by nearly $200 billion before prices rebounded.
Attempting to identify what was behind the sudden price movement, some analysts identified a Matrixport investor’s note warning that the Securities and Exchange Commission (SEC) could rebuff expectations and reject spot bitcoin ETF applications. However, the firm’s CEO Jihan Wu said: “It’s unrealistic to believe that a Matrixport report could trigger a trillion-dollar size market to crash.”
Offering an alternative explanation, Wu blamed an unexpected decline in crypto stocks during the preceding days.
Meanwhile, Coinglass data shows daily Bitcoin futures liquidations spiked significantly on Wednesday, with the number of liquidated long positions surging to its highest level since August. This suggests an overleveraged market created the conditions for a sharp retraction.
Following several days of fluctuating prices, Bitcoin’s realized volatility climbed to nearly 62% on Friday. In the grand scheme of things, this is still relatively low. After all, this is a metric that has often surpassed 200% in the past. However, with so much hanging on the expectation of ETF approvals, there could well be more turbulence to come.
Whatever decision the SEC makes, it will almost certainly affect the price of Bitcoin.
With most analysts expecting the regulator to approve spot Bitcoin funds, market gains in recent months may have already priced in such a result. Accordingly, the opposite outcome will likely have a more pronounced effect of price volatility and could trigger a major crash in the price of BTC.
Looking further ahead, the looming Bitcoin halving scheduled to occur in April could also instigate a period of turbulent price action in the preceding weeks.
Historically, the run-up to Bitcoin halving events has been characterized by high volatility. This is fuelled by a surge in demand as investors anticipate the reduced supply of new coins. The bullish pattern typically observed pre-halving is often followed by a mild pullback in the immediate aftermath of the event. However, after every halving so far, the price of BTC has climbed significantly over the following 12 months.