Why Bitcoin (BTC) Shows Year-End Weakness
Bitcoin (BTC) started the new week at $46,902.78, after a weekend of stagnant prices. Ethereum (ETH) was struggling to regain the $4,000 level, but managed to climb above $3,900.
BTC now enters the final ten days of the year, a period where significant price moves have been made. But 2021, which has been immensely successful with a double peak in May and October, may be set to end with prices in a sideways drift and even fears of a bear market to follow.
One of the reasons for the short-term BTC price weakness is a deleveraging event on December 3, breaking down futures trading temporarily. The overall trading mood remains fearful after BTC shortly dipped close to $42,000 on DeriBit.
Mainland China Exchanges Face Deadline
The end of the year is also a deadline for Binance and other Chinese exchanges to stop serving clients from Mainland China. Selling and closed accounts, as well as last-minute orders to liquidate, may be causing price pressures.
At the same time, BTC starts to set another accumulation phase. The Chinese ban may take months to redirect trading, similar to the mining ban in May. In the fall of 2017, the cryptocurrency markets had a temporary shock when China banned direct pairings of BTC with the Chinese yuan. Later, stablecoins appeared to replace the lost trading pairs.
BTC: No Physical Coin Capitulation
The futures markets may be deleveraging, but BTC has not seen signs of on-chain capitulation, with the attempt to dump actual coins on the market.
The chief reason is the fact that most buyers are in the money and can afford to wait out the market, while adding to their stash. BTC is more established and the selling often comes from recently acquired retail coins. Miners are also mostly holding their coins, selling only a fraction to cover costs.
Can BTC Return on Track
Currently, BTC remains in the zone where the Rainbow chart suggests the best strategy is to hold onto coins and wait out the market. But the question remains whether BTC can shake off the expectations of a bear market and move closer to $60,000.
With renewed resistance levels, BTC has a chance of an upward scenario hinging on regaining a set of prices up to $55,000.
BTC Faced Headwinds in 2021
The past year, though successful for BTC, saw a list of crisis events which made at least a short-term effect on the price.
The miner ban in China coincided with the biggest leveraged trading event for BTC, wiping out $9B in long and short positions. Smaller capitulations also happened in September and December.
The launch of a Bitcoin ETF has been delayed again at least for some forms of the investment product. For now, a Canadian ETF is one of the few to buy and hold physical coins.
Other attacks included a renewed criticism on BTC and cryptocurrency in general for being too energy-hungry. Despite the fact, demand for BTC remained high, with the appearance of public corporate buying from MicroStrategy and Tesla, Inc.
Is a Short Squeeze Coming for BTC
Open interest has gradually grown, as indicated by the Binance exchange. After the deleveraging event on December 3-5, open interest on BTC futures rose from around 40,000 BTC up to 56,000 BTC.
However, short positions remain the minority based on top tracked accounts, with 60% of traders in long positions.
Despite expectations of a short squeeze, BTC may have to see more short position accumulation and go through the last Friday of the month with another struggle between bullish and bearish positions ahead of the futures settlement.
BTC also faces a holiday season with potentially subdued trading. Other year-end price pressures include recent inflation data, which may continue the demand for BTC as a source of gains or store of value.
Can ETH Achieve Another Rally
ETH stalled just under $4,000 facing the last days of the year. Some of the most bullish expectations for prices as high as $10,000 failed to become reality.
ETH is also seeing a slow period, with diminishing on-chain activity and less demand for gas. More DeFi projects are moving on side chains or using new networks.
ETH is also having a net exchange inflow with the potential to depress prices.
Unlike BTC, ETH is not seen as a store of value. Potentially, ETH can be valuable for future staking, where holding 3.2 ETH is the minimum to secure the eventual launch of ETH 2.0. ETH saw significant support in the past year from the rise of DeFi and NFTs, but it is still more difficult to adopt due to unpredictable gas fees.
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