Bitcoin Rallies Keep Getting Quickly Sold – What’s Up?

After a quick surge to start the year resulted in a near-doubling of its price, bitcoin (BTC) has mostly traded in an exceedingly tight range for the past few months, struggling to hold above $30,000 for a sustained period.

Looking at the price action since April, and in particular since mid-June, there’s been a noticeable abruptness of reversals any time bitcoin has attempted a breakout above $30,000. The most dramatic occasion came on July 13 when the cryptocurrency surged to a one-year high above $31,800 following a favorable court ruling for XRP in its case with the U.S. Securities and Exchange Commission (SEC). Within hours, bitcoin had given up not just the $31,000, but also the $30,000 level, and within days had even dipped below $29,000.

The most recent example came this week, when the price climbed throughout the day on Tuesday to top $30,100 late that afternoon. Before news stories about the rally could even be published, bitcoin had slipped back more than 1% to about $29,700. Its price at press time was $29,400.

To be sure, dips in bitcoin during the past few months have also proven to be short-lived, with prices quickly rebounding each time the price declined below $29,000.

Awaiting regulatory clarity

Analysts are pointing to a number of reasons behind the rallies struggling to hold, with one of them being many buyers sitting on the sidelines until getting clarity on whether the SEC will soon allow a spot bitcoin ETF.

“The market is stuck whilst it awaits new fundamental information,” said Spencer Hallarn, a derivatives trader at market maker GSR. According to Hallarn, until the SEC makes a decision on the recent flurry of spot bitcoin ETF applications, the market will remain balanced.

The much anticipated news awaited from the SEC comes after financial giant BlackRock filed for a bitcoin spot ETF in mid-June, spurring a number of other traditional asset managers to follow with their own applications (or re-filing of previously denied applications).

According to Sean Farrell, head of crypto strategy at FundStrat, one reason behind the lack of momentum could be due to miners taking profits ahead of the Bitcoin halving. The so-called halving – where block rewards are cut in half to 3.125 bitcoins from the current 6.25 – is expected to take place on April 16, 2024. “It is evident that this cohort is taking profits following major rallies and capitulating during extended periods of flat price performance,” said Farrell.

The lame follow-through to any rally could also be merely due to a sustained lack of new retail participation in the market, suggested Farrell “The good news is that this pattern is emblematic of the earlier portions of prior bull markets,” he said. “Some positive ETF news could certainly push us out of this sideways grind.”

“The market has remained in such a tight range for the last month and change has allowed options open interest to cluster in the same area, which results in volatility being suppressed until it gets outside of the recent range,” said Hallarn. Volatility, he said, will muted until it explodes out of the range and “isn’t shackled by this effect any longer.”

Not only in spot, but also in derivatives flow, there’s been strong resistance around the local highs, said Christopher Newhouse, an independent crypto derivatives trader. “Even small pops in the front end of the curve are almost immediately sold off. Higher spot prices are not the only thing quickly faded by traders – volatility is as well,” said Newhouse.

Echoing Hallarn’s thoughts, Newhouse said that one of the most meaningful catalysts is specifically focused on the spot ETF and any subsequent delays or an approval. Perhaps this could be an opportunity to short August/September volatility and go long for further dated options, said Newhouse.