Max Korpusov

Analyzing Bitcoin's September 2023 Downtrend

The year 2023 began with an event where traders holding positions were consistently causing liquidations, in the Bitcoin futures market. However on August 17th the market experienced a shock. A flash crash occurred, leading to the liquidation of positions, worth over $213.5 million. This event became the single day occurrence, since the collapse of Terra Luna in May 2022. The unexpected shake up left investors feeling disoriented.
Since that moment Bitcoin has been witnessing an outflow of capital, which reflects the cautious approach of risk averse investors who are now hesitant to engage with both Bitcoin and its counterpart, Ethereum. Despite starting strong in derivatives markets for 2023 there has been a decline in risk appetite compared to the days of 2021 and 2022. As a result there has been a loss of $6 billion, in terms of market capitalization.

Declining Derivatives Volume and Waning Interest

Bitcoin downtrend is directly connected by a drop in interest from investors. Some analysts speculate that Bitcoins price could potentially reach $22,000 as a result. When long positions are liquidated without buying pressure from trading volume it inevitably has a negative impact on Bitcoins price. Lack of liquidity and reduced trading activity has also caused the Fear & Greed Index an indicator of investor sentiment to plummet over the last month transitioning from a neutral stance, to outright fear.

Why is Bitcoin Falling Today

Tense geopolitical environment and the resulting uncertainty, as well as the fear of inflation, is forcing investors to reconsider their decisions to invest in crypto assets. Among the many specific factors, it is worth highlighting 2 that contribute the most to Bitcoin's price fluctuations:
  • First of all, there is increasing concern about inflation in first world countries like the US and UK. The rising costs of goods and services as a result of uncertainty have triggered these worries. Moreover investors might be shifting their assets to stable investment options because of the US Federal Reserves commitment to combating inflation through interest rate hikes. This shift has led to a decrease in the value of Bitcoin.
  • Another factor that could be contributing to the decline in Bitcoins value is the conflict between Russia and Ukraine which has had a ripple effect on global financial markets. Geopolitical events like this can erode investor confidence in the market resulting in a drop, in Bitcoins value since it is considered a speculative asset. Additionally the recent collapse of FTX crypto exchange may further contribute to Bitcoins decline as it adds uncertainty to an already unstable cryptocurrency market.

The Macroeconomic and Regulatory Landscape

Bitcoins price remains intricately tied to macroeconomic events and regulatory actions. Despite China's recent decision to recognize virtual assets as legal property and the impending acquisition of a virtual asset service provider license by the OKX exchange in Hong Kong, Bitcoin's price has continued to slide. Federal Reserve Chairman Jerome Powell's August 25th speech in Jackson Hole, Wyoming, also hinted at the Fed's commitment to aggressive interest rate policies in its battle against inflation.
In the long term, market participants still hold hope for Bitcoins recovery, particularly as more financial institutions appear to be embracing the cryptocurrency.

Bitcoin ETFs: A Glimmer of Hope

Amidst the short-term turbulence, institutional investors remain undeterred in their long-term outlook for the cryptocurrency market. Despite the regulatory headwinds in the United States, major financial institutions are actively pursuing Bitcoin financial instruments, potentially paving the way for a market resurgence. Currently, nine top investment firms have exchange-traded fund (ETF) applications awaiting approval from the SEC.
However the SECs careful approach still creates an air of uncertainty. Bitwise has recently decided not to proceed with its applications for Bitcoin and Ethereum ETFs while the SEC seems inclined to postpone decisions on approving Bitcoin ETFs, including BlackRocks request until 2024.
This lack of clarity in regulations might have effects, on how investors view the market and how prices fluctuate within the crypto industry.
The downward trajectory of Bitcoin's price in September 2023 can be attributed to a complex interplay of factors such as: diminishing derivatives volume, regulatory uncertainty, and macroeconomic events. While it is not clear now how long will bitcoin downtrend last, the cryptocurrency community continues to look towards the horizon with hope, expecting that Bitcoin will ultimately regain its footing as more institutional players join the fray.

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