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The original was posted on /r/cryptocurrency by /u/MirageInc on 2023-12-29 00:27:36+00:00.
Bitcoin (BTC) is expected to correct to as low as $32,000 next month following the potential approval of a spot ETF, according to data provider CryptoQuant.
In what is being described as a potential "sell the news" event, CryptoQuant said in a note to CoinDesk that trader's unrealized profits are currently lingering at a level that historically precedes a correction.
"Sell the news" is a well-known term in capital markets, it describes how asset prices, leverage and sentiment run up in the lead up to a bullish event only for prices to tumble shortly after.
This is because astute traders capitalize on the over-crowded long trade, trapping those with leverage and forcing them to close or get liquidated as price goes against them.
An ETF being approved is perceived as a bullish event as it will open up inflows to bitcoin from institutions, thus creating consistent buy pressure.
"Short term Bitcoin holders are experiencing high unrealized profit margins of 30%, which historically has preceded price corrections (red circles)," CryptoQuant wrote in the note. "Moreover, short term holders are still spending Bitcoin at a profit, while rallies usually come after short-term losses are realized."
CryptoQuant added that bitcoin price may decline to as low as $32,000, which is the the short-term holder realized price.
Capriole Investments said that "conservative portfolio management" makes sense in the lead up to the potential approval of a spot ETF.
"With Bitcoin up over 60% since ETF mania began a few months ago, and with every man and his dog on X.com expecting an approval on or around 10 January, we must start to anticipate much larger volatility events (up/down) in this region. Risk today is substantially higher for long Bitcoin positions than it was just a few weeks ago," Capriole wrote in a blog post.
In bitcoin's history, "sell the news" events are common, in 2017 BTC topped out at $20,000 after the CME listed BTC futures, and in 2021 the world's largest cryptocurrency peaked again, hitting $65,000 after Coinbase completed its IPO before losing ground in the following months.
Bitcoin is currently trading at $42,450 having began the year at $16,000. Daily trading volume remains steady at $80 billion, according to CoinMarketCap.
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