The price of Bitcoin has fallen 13% since the SEC approved the first Spot ETF in early January. However, some analysts believe that the worst is yet to come for the flagship cryptocurrency before it can rebound.
Conditions ripe for a Bitcoin capitulation
Since the peak reached in early January, the price of Bitcoin has only continued to fall. However, according to MAC_D, analyst at CryptoQuant, this downward movement could continue.
“ To end the current downtrend, a capitulation event must occur, involving the massive liquidation of leveraged long positions.”, explain-he.
Indeed, as of January 2, the hourly funding rate of Bitcoin had reached 0.049%, reflecting the accumulation of very speculative and risky long positions.
A purge of these excessive positions via a sudden drop in prices therefore seems necessary to clean up the market. It would probably be accompanied by a fall in the hourly financing rate, potentially into negative territory.
A purchasing opportunity to seize
Although a massive capitulation means extreme pessimism in the market, MAC_D believes it could present an opportunity for long-term investors.
“ If prices drop sharply and the funding ratio turns negative on the hourly chart, this could signal that leveraged traders are too pessimistic about the market, which could be a good opportunity to buy back bitcoin”says the analyst.
Therefore, if this scenario comes true, it will be necessary to monitor certain technical and market sentiment indicators to detect the bottom and the best time to reposition for purchase.
Indeed, the BTC exchange reserve has increased by 0.47% since the approval of the spot ETF while the speed of Bitcoin outflows from the platforms has slowed by 10%.
An excessive correction would therefore allow the market to be purged, before a possible upward rebound on healthier bases. Long-term investors could then take advantage of this excess pessimism to reconstitute their positions.
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