(Bloomberg) -- Bitcoin paused a retreat that began after US exchange-traded funds for the largest digital asset began trading on Jan. 11 and now faces a pivotal test if key charts are right.
The token rose as much as 2.6% on Wednesday before paring some of the gain to trade at $39,720 as of 6:05 a.m. in London. It's down almost 20% from an intraday peak of $49,021 when the ETFs went live, as fanfare about the products gives way to uncertainty over the eventual scale of demand for them.
The US spot Bitcoin ETF category as a whole has attracted about $1 billion in net inflows so far, compared with the digital asset's $778 billion market value, data compiled by Bloomberg show. An outflow of almost $4 billion from the Grayscale Bitcoin Trust — which converted into an ETF from a closed-ended format and is the largest portfolio for the token — has cooled sentiment.
“This latest Bitcoin correction reflects extended positioning and technical factors around the Grayscale ETF, which should all fade over the medium term,” Orbit Markets co-founder Caroline Mauron said.
Technical analysis using chart patterns signals a possible base for Bitcoin at $36,000 to $38,000 and even a renewed climb if those levels hold.
Drawn-Out Drama
Bitcoin jumped 157% last year in anticipation of the ETFs as well as looser monetary policy before sinking this month. That's “classic buy the rumor, sell the fact” behavior but the funds, plus the prospect of interest-rate cuts, remain props for the token, said Tony Sycamore, a market analyst at IG Australia Pty.
Big Selloff
The latest Bitcoin selloff is the fourth time over the past year or so when the token shed around 20%. “We're seeing renewed interest from counterparties to put on bullish positions at these levels,” said Mauron, whose firm Orbit Markets is a provider of liquidity for digital-asset derivatives.
Looking for Support
An Ichimoku Cloud study — which uses mathematical formulas to help define areas of resistance and support — indicates a possible cushion for Bitcoin around $37,000. Near-term stabilization would be a “natural” development at this stage, Katie Stockton, founder of Fairlead Strategies LLC, wrote in a note.
Rally to Resume?
Elliott Wave studies posit that markets are prone to repeating wave patterns. Applying the technique to Bitcoin suggests a base for the token at $36,000 to $38,000 before a fifth wave reignites the rally that began last year. The prospect of rate cuts in 2024 will add “to the monetary liquidity forces that should drive funds into risk assets such as Bitcoin,” wrote Noelle Acheson, author of the newsletter.
--With assistance from Suvashree Ghosh, Sunil Jagtiani and Sidhartha Shukla.
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