Bitcoin’s $38.5K: The ‘ETF Dip’ Explained in 3 Reasons

Bitcoin (BTC) recently hit a two-month low, but there are indications that the cryptocurrency may be bottoming out. BTC/USD has been experiencing a bounce back after dropping to $38,500, and on-chain metrics are suggesting that the market is oversold. Despite the recent bearish trend, there is growing optimism about a sustained price recovery for Bitcoin, especially with a general reduction in institutional selling pressure.

One factor that has been influencing BTC price trends is the introduction of the first spot Bitcoin exchange-traded funds (ETFs) in the United States. While these ETFs have seen significant inflows since their launch on January 11, they have also contributed to a 20% downside for BTC/USD. The Grayscale Bitcoin Trust (GBTC) is specifically being blamed for this phenomenon, as investors who were previously trapped can now exit the trust. Regulations require a cooling-off period before they can invest in another spot Bitcoin product. While critics argue that the downward pressure on Bitcoin is not solely due to GBTC outflows, the decreasing outflows do suggest that the recent low in BTC/USD may hold.

Another metric that has provided insight into BTC price movements is the advanced network value-to-transaction (NVT) signal. This metric compares the total value of transactions over a 90-day period to the Bitcoin market cap at a given time. The recent drop in BTC price has pushed the NVT signal to its lowest standard deviation band, indicating that the current price point of $38,500 may be unusually low. This is the first time this signal has reached the oversold range in the current bull market, which suggests that a recovery may be on the horizon.

The recent lows in BTC price have also revealed some interesting patterns in the behavior of Bitcoin hodlers. On-chain data shows that even long-term holders (LTHs) have been sending coins to exchanges at a loss. This is reminiscent of the sell-off that occurred after the ETF launch when short-term holders (STHs) were at the forefront of selling. James Van Straten, a research and data analyst at CryptoSlate, has warned that LTHs may be on the brink of capitulation, which could lead to a more intense round of selling.

It’s important to note that nothing is certain in the cryptocurrency market, and even long-term holders have shown signs of capitulation. With the decreasing outflows from GBTC, the oversold market conditions indicated by the NVT signal, and the potential for a recovery in BTC price, there is growing consensus that Bitcoin may have bottomed out. Traders and investors will continue to closely monitor these indicators to determine if a sustained price recovery is on the horizon.