January 15 REX Wire Market Outlook

Above-expectation inflation provided some headwinds, but bitcoin's correction had more to it than poor CPI figures.

Why have ETFs not impacted the spot market?

As the third week of 2024 kicks off, we take our regular Monday look at the markets.

That latest inflation figures came in a little hot, with US CPI rising to 3.4% in December, up from 3.1% in November and above the expected 3.2%. Core CPI (which strips out the more volatile food and energy costs) was 3.9% year-on-year: Down on November's 4%, but higher than the forecasted 3.8%. The Bureau of Labor Statistics (BLS) attributes these rises primarily to the increasing cost of shelter.

While interest rate cuts are on the horizon for 2024, the market's belief of six cuts for this year, totaling 1.5%, might now be a touch optimistic. This should have the effect of slightly strengthening the dollar, which is currently consolidating around 102.5. It remains to be seen whether the DXY will break out of its three-month downtrend or continue lower in the coming weeks.

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Bitcoin Unbuoyed By ETFs

Last week, 11 spot bitcoin ETFs launched to enormous fanfare. The results were bemusing to some community members, however (especially those expecting a "god" candle). Despite attracting huge trading volumes, the new ETFs had no apparent effect on the underlying market. In fact, bitcoin has suffered a savage correction, dropping from its Thursday high of $49,000 to a low of $41,500 on Friday: A 15% correction in a single day.

There are several possible reasons for this. $48,000 is a key technical region and a rejection at this resistance level is expected (especially in such overbought conditions). Moreover, traders have been buying the ETF rumor for months, and there was always a realistic possibility of them also selling the news. Bitcoin regularly puts in 20-40% corrections in the course of a bull market, and such a crash was long overdue. Realistically, the correction could last 30-90 days, based on past experience—though zooming out, bitcoin has been consolidating in the same region for five weeks now.

Neither were these technical factors offset by large amounts of spot buying by the ETFs. Significant sales of GBTC may have taken place, and ETF providers lined up OTC deals in advance to avoid being forced to make spot buys. It will take some time for new inflows to soak up excess liquidity before demand from ETFs filters through to the spot market.

Interestingly, Bitcoin Dominance has fallen back to its lowest level in three months. While the entire market has been punished by the correction, alts are generally faring less badly.

There were various explanations for the mismatch of expectations given by analysts, but there was also plenty of gloating by those with an axe to grind against bitcoin.


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