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BTC speculators dump $5B — 5 things to know in Bitcoin this week

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Bitcoin (BTC) heads into week three of January still holding $40,000 after a wildly volatile start to the year, but where will the BTC price go next?

Following the debut of the first spot Bitcoin exchange-traded funds (ETFs) in the United States, price action has never been the same. Snap moves both up and down have surprised both long and short BTC traders, and the liquidation tally tells the tale.

As a new week begins, Bitcoin faces two narratives at once: some believe the dip that came after the ETF launch will mark a healthy support retest, while others see the preceding local top as staying put for a long time.

There may be up to two weeks’ grace to decide before further major catalysts set in. U.S. macro data triggers are set to cool somewhat before another Federal Reserve interest rate decision hits at the end of the month.

Speculative traders may also be exhausting themselves, having offloaded billions of dollars in BTC at a loss last week.

Cointelegraph takes a look at the current state of BTC markets as they recover from a seminal event in Bitcoin’s history.

Bearish Bitcoin price targets fester post-ETF dip

Having reached $49,000 on ETF launch day, BTC/USD did not keep the momentum up for long.

A subsequent comedown took the market all the way back to the bottom side of its established trading range, but sellers could not force a true retest of the $40,000 mark.

Instead, two local bottoms near $41,500 were seen, the second coming at the Jan. 14 weekly close, data from Cointelegraph Markets Pro and TradingView shows.

At the time of writing, Bitcoin is closing in on $43,000 after a modest relief bounce overnight.

BTC/USD 1-hour chart. Source: TradingView

Prior to the close, trading resource Material Indicators saw order book data giving early warnings that a support test was coming but that this could be far lower.

“The binance order book shows ~$270M in bids spread from $41.3k-$36.5k with $68M of it focused on the $38.5k-$39.4k range. Additionally, the buy wall at $26.5k has been broken up and moved up,” part of comments on X (formerly Twitter) read.

“These are all early signs that bulls are positioning for another retest of resistance. Watching the weekly close for more clues.”

BTC/USDT order book data for Binance. Source: Material Indicators/X

Later, popular trader Skew delivered a list of signals to believe that the bounce off the lows would stay.

These included reclaiming $42,500 on daily timeframes, the relative strength index (RSI) staying above 50/100, and Bitcoin holding its yearly opening price near $42,250 as support.

The extent of the retracement from $49,000 nonetheless seemed to catch the majority of bulls by surprise. According to data from statistics resource CoinGlass, Jan. 12 liquidated around $112 million in BTC longs, making it one of the costliest days in recent months.

Bitcoin liquidations (screenshot). Source: CoinGlass

For analyst Matthew Hyland, the range top around $48,000 still presents a problem, and Bitcoin may need more time to overcome it based on recent events.

In his latest X posts, he cautioned that a trip to the mid-$30,000 range could still happen.

This chimes with a popular theory that calls for a further flush toward $30,000, but while Hyland and others see a subsequent continuation of the bull market, that view is not universal.

As Cointelegraph reported, controversial trader Il Capo of Crypto still believes that new macro lows are due, with these extending to as low as $12,000.

Markets see Fed cuts in March despite CPI overshoot

Those hoping for a break from volatility may yet get their wish this week — at least from a macro perspective.

ETF trading aside, U.S. data prints are cooling in the coming days, with unemployment data leading the list of inbound releases.

Just two weeks until the next Fed meeting to decide on interest rate change, the situation around inflation remains tenuous. Last week’s little-observed Consumer Price Index (CPI) numbers showed prices climbing again in December 2023 by more than expected.

While markets do not believe that the Fed will lower rates this month anyway, the numbers were not lost on commentators.

Reacting, trading resource The Kobeissi Letter described the Fed’s job as “not done yet.”

Despite this, it continued, markets do see rate cuts — a boon for risk assets, including crypto — coming in quick succession from March onward.

According to data from CME Group’s FedWatch Tool, the odds of a January rate change freeze to continue — already in place for several months — currently stand at over 95%.

Fed target rate probabilities. Source: CME Group

Bitcoin speculators panic sell nearly $5 billion in a day

For many, ETF week ultimately became a week of selling, not buying, Bitcoin.

Despite institutions finally having the chance to add BTC exposure, price action showed the psychological impact of volatility in classic style.

The $50,000 mark was too much for bulls, with whales lining up to distribute to the latecomers, while the reversal toward $40,000 saw significant panic.

This was evident in the proportion of BTC being sold for less than it was purchased. According to data from on-chain analytics firm Glassnode, on Jan. 12, this reached 88,000 BTC ($3.75 billion).

“That is mental,” James Van Straten, research and data analyst at crypto insights firm CryptoSlate, responded, noting that total sales amounted to 111,000 BTC (currently $4.7 billion).

Bitcoin transfers from STHs in loss to exchanges. Source: Glassnode

The sales nonetheless came from short-term holders (STHs) — entities holding a given BTC investment for up to 155 days. The ETF announcement, it would seem, had given speculators reason to buy, hoping that further upside would result.

Glassnode shows that, by contrast, long-term holders (LTHs) barely reacted to the events, keeping at-a-loss sales muted.

Bitcoin transfers from LTHs in loss to exchanges. Source: Glassnode

Bitcoin miners may not see difficulty drop

Based on recent price action, it may thus seem unlikely that Bitcoin would be due yet another difficulty increase.

Estimates, however, say the opposite — at $42,500, Bitcoin mining difficulty is still slated to edge higher by 0.35% this week, according to data from on-chain statistics resource BTC.com.

The move is impressive — miners have weathered the ETF volatility storm, and competition for block subsidies remains extremely robust.

As Cointelegraph reported, difficulty marched higher, practically unchallenged, throughout the third and fourth quarters of 2023, with only a modest 1% decrease in December reining in the uptrend.

Bitcoin network fundamentals overview (screenshot). Source: BTC.com

For miners, the key moment is yet to come — April’s block subsidy halving event, which will cut the amount earned per mined block by 50% to 3.125 BTC.

Until then, fees remain elevated, while hash rate continues to circle all-time highs seen over Christmas.

“Bitcoin fees have now been cut in half from the December high. Now, sit at the high during the Inscription frenzy back in May 2023,” Van Straten noted in an X post on the topic at the weekend alongside Glassnode data.

“Will be interesting to see where this levels out and will have an impact on miners moving forward into the halving.”

Ethereum may be next to return to earth

As Bitcoin suffered post-ETF, it was largest altcoin Ether (ETH), which picked up the slack.

Related: Bitcoin price crumbles after spot ETF approval, but ICP, TIA, MNT, SEI and altcoins rebound

ETH/BTC made swift gains late last week, while ETH/USD reached its highest levels since mid-2022.

ETH/BTC 1-day chart. Source: TradingView

Now, however, some are sounding the alarm — open interest has mushroomed, and speculative ETH bets may soon become too much to handle.

“There is still a looming sword of Damocles over the Ethereum market in the form of $1.35 billion in fresh open interest,” Maartunn, a contributor to on-chain analytics platform CryptoQuant, warned X followers on Jan. 14.

ETH/USD chart with open interest. Source: Maartunn/X

Van Straten meanwhile noted a rotation of open interest away from Bitcoin toward Ether, leaving CME Group Bitcoin futures in “backwardation” — below spot price.

This, he suggested, was due to excitement over a possible Ethereum ETF thanks to last week’s comments from Larry Fink, CEO of asset manager BlackRock.

“OI in CME is down 13% from the highs ($700M), while ETH OI is up 14%,” he explained, adding that this could ultimately be a “buy signal” for Bitcoin.

CME Group Bitcoin futures vs. Ether futures open interest. Source: Glassnode

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.