On Wednesday, January 17, 2024, the US Securities and Exchange Commission (SEC) approved eleven Bitcoin spot ETFs. The BTC price did not change much following the news, whereas the ETH price increased from $2,475 to $2,687 in 18 hours. Meanwhile, we saw strong demand for Ethereum infrastructure projects like $ENS.
Prior to the launch of the Bitcoin spot ETF, the BTC price reached a two-year high of $49,000. However the Bitcoin price fell off a cliff, dropping more than 6% in the first two hours in the first trading session. The next day, the BTC price continued to fall, dropping another 8.5% after the US market closed. BTC reached a low of $41,500 on Thursday afternoon.
In comparison, ETH has outperformed BTC in the seven days since the BTC spot ETF approval. ETH rose 8.3%, while BTC fell 6.5%.
The soaring ETH price was driven by the expectation that the SEC would approve an ETH spot ETF in Q2 this year. However, the upward momentum collapsed following a significant BTC decline and multiple research reports indicating that the ETH spot ETF would not be approved in the near future.
Overall Market
The above chart shows the BTC price in the past two months.
Following the selloff in BTC during the first two trading days of the 11 BTC spot ETFs' launch, the upper blue trend line was breached and is now acting as a resistance line.
The selloff on BTC could be caused by several reasons:
1. Buy the rumour, sell the news narrative: Following the US SEC's approval of BTC spot ETFs, traders unwound their long positions to secure their profit. The BTC spot ETF narrative has driven the BTC price up nearly 100% since September 2023. When this narrative was gone, our desk was not surprised to see profit-taking action on the market.
2. Asset allocation: After the BTC spot ETFs were approved, the story of an ETH spot ETF approval later played out, and the ETH/BTC price indicates that a large amount of capital flowed into ETH from BTC.
3. Grayscale Bitcoin spot ETF outflow: Grayscale converted its Grayscale Bitcoin trust into an ETF, allowing investors to sell their shares on the market. Previously, Grayscale Bitcoin Trust required a six-month lockup, and market liquidity was limited once the lockup period expired. Following the conversion to an ETF, investors sold their shares with the increased liquidity. Furthermore, the Grayscale BTC spot ETF charges the highest management fee, 1.50%, while the other ETF asset managers are charging 0.25% or lower. The management fee difference could also be a push for investors to sell their GBTC shares for other ETFs with lower fees. Grayscale Bitcoin Trust had 619.22K BTC before the conversion; today, their Bitcoin spot ETF has 605,890 BTC, according to information updated on their website. The GBTC ETF saw a net outflow of over 13 thousand BTC in the last four trading days, totalling USD 579 million.
The above chart shows the ETH price since January 2023.
After the Shanghai upgrade, ETH experienced a downward trend, but the price successfully broke the downward channel and began to rise in November 2023.
Recently, the BTC selloff influenced the ETH price, which found support above the $2,450 level. From a technical standpoint, the ETH upward channel remains intact, and the ETH price may continue to rise to challenge the upper channel boundary.
Using the Fibonacci levels, the next target level for ETH is $3,062
Options Market
The above table shows the at-the-money implied volatility for BTC and ETH options.
The market experienced a volatile trading week on BTC and ETH after the BTC spot ETF approval last Wednesday. The implied volatility of Bitcoin options has retraced from over 80% to 50% in the short-term options. So did the implied volatility of ETH options.
Our desk observed that the implied volatility of BTC and ETH options has returned to normal levels, with a large spread between the implied volatilities of ETH options and BTC options in the longer tenor options.
That being said, the market expects the BTC price to move sideways and the ETH price to fluctuate in the near future.
Macro at a glance
Last Thursday (2024-01-11)
In December 2023, the US CPI increased by 3.4% year on year, exceeding the expected 3.2% and November's 3.1%. During the same period, the core CPI increased by 3.9% year on year, exceeding the estimated 3.8% but falling slightly short of November's 3.9%. Because the US CPI numbers did not fall as expected, the market expects the Fed to cut interest rates later. As a result, the US dollar index DXY rose 0.39% after the numbers were released but lost all of its gains intraday.
US initial jobless claims remain in the low range, reported at 202k, lower than the estimated 210k and last week's 203k.
China's CPI fell 0.3% year on year in December 2023. The decrease was less than the expected 0.4% drop and November's 0.5% drop.
China's PPI fell 2.7% year on year in December, following a 3.0% drop in November. The declines in China's CPI and PPI indexes indicate that the Chinese economy is facing strong headwinds, and deflation has put additional pressure on China's economic recovery.
On Monday (2024-01-15)
The UK unemployment rate in November was 4.2%, slightly lower than the estimated 4.3% and the same as October's figure.
In December, the German CPI was 3.7% on a yearly basis, up 0.5% from 3.2% in November.
On Tuesday (2024-01-16)
In January, the US New York Empire State Manufacturing Index was -43.70, significantly lower than the estimated -5.00 and -14.50 in December. The index last recorded a similarly low reading in April 2020, following the nationwide lockdown due to Covid-19. The index reading raised market concerns about the US economy's conditions.
Convert Portal Volume Change
The above table shows the volume change on our Convert Portal by zone.
In the last seven days, our desk has noticed some significant volume changes in the different zones.
Last week, trading volume in the Liquid Staking zone had the largest increase across the board. Jito ($JTO) is the primary contributor to the volume growth. Jito ($JTO) is a liquid staking and maximum extractable value (MEV) protocol on the Solana network.
In Meme zone, our desk has seen a significant drop in trading volume on ConstitutionDAO ($PEOPLE) and the BRC20 tokens, ORDI ($ORDI) and SATS ($1000SATS), in the last seven days. The falling BTC price has a large impact on BRC20 token trading volumes.
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