Bitcoin encountered a challenging start to the week as its price with its price slipping below the closely monitored $41,000 support level early on Monday.
Why Is BTC Dropping?
The current market weakness is, in part, associated with Grayscale. Following its transformation into a spot exchange-traded fund (ETF), the Grayscale Bitcoin Trust (GBTC) owner, has engaged in substantial BTC deposits (over $1.7 billion) on Coinbase, placing pressure on BTC prices.
Earlier on Monday, CryptoQuant analysts also emphasized that Bitcoin is currently undergoing a distribution phase by “old coins”, with the assets not yet fully disseminated to retail investors. The analysts also highlighted that Bitfinex’s influential whales have closed leveraged positions, leading to a notable surge in the Tether (USDT) reserve on the platform. They further noted they anticipate a potential short-term correction while underscoring the continuation of the long-term bull market cycle until complete distribution is achieved.
Brace for More Pain, Hayes Warns.
That said, despite the ongoing and painful downturn for retail investors, Arthur Hayes, co-founder of BitMEX, remains pessimistic about the markets near future. In a tweet, Hayes predicted a further dip below the $40,000 level and a sustained downward trend until January 31 tying his bearish stance to the worsening liquidity in the financial system.
“BTC looks mad heavy. I think we break $40k…I think we dump into the 31Jan US Treasury quarterly refunding announcement. Is Janet Yellen or Talkin’?” wrote Hayes.
To back his claim, crypto reporter Colin Wu of Wu Blockchain speculated that Hayes may have acquired March put options on Deribit at a rate of 0.025 BTC per share, amounting to a total of 5 BTC.
Hayes’ latest warning comes on the heels of his earlier caution this month, where he foresaw a 20-30% correction in Bitcoin due to a decrease in dollar liquidity. In a Substack article, he highlighted risks for U.S. banks, anticipating a significant drop in the Federal Reserve’s reverse repurchase program balance to $200 billion by March, from its late 2022 peak of over $2.5 trillion.
With the end of the emergency bank financing program, he noted that banks must secure funds for treasury bonds by March 12, potentially leading to bankruptcies which will impact both traditional and cryptocurrency markets.
Nevertheless, not everyone feels Bitcoin will go lower. Popular crypto analyst and MN Trading founder Michael van de Poppe considers the correction to be normal and advises investors to consider buying on dips.
“Bitcoin is at the range low and is actually in the area to be accumulated. Additionally, this also means that Altcoins are in stages to be bought as those 20-40% dips are a great opportunity.” Wrote Poppe.
At press time, BTC was exchanging hands at $40,864 after registering a 2.86% drop in the past 24 hours.