Three Possible Reasons Why Bitcoin Fell by Four Thousand Dollars Yesterday

Bitcoin had an impressive start to the year. It jumped by more than three thousand dollars on the second day of the year, reaching its highest level since April 2022 of nearly 46 thousand dollars. However, the rise was abruptly interrupted yesterday as the market considers some possible reasons.

Will the SEC Reject All ETF Proposals?

All eyes of the crypto community in recent months have been focused on the Securities and Exchange Commission (SEC) and the possibility of finally approving a spot bitcoin ETF. Although the agency has postponed and rejected numerous previous applications, the overall sentiment is different this time, mainly due to the involvement of financial giants such as BlackRock, Fidelity, ARK, and others.

Moreover, experts speculated that the SEC would likely give the green light for such a product, which is estimated to bring trillions of dollars to crypto markets in the next few years, by mid-January. The anticipation of the ETF resulted in a significant increase in the price of bitcoin at the end of 2023 and the beginning of 2024.

However, reports emerged yesterday that the SEC might reject all current applications, as well as that they lack essential guidelines on how ETFs will avoid market manipulation. Given the significance of such a decision, if it materializes, it is no wonder that speculation about upcoming rejections caused a price drop.

Despite this, Bloomberg’s leading ETF expert Eric Balchunas dismissed the rumors, stating that he had not seen any indications of such a development.

Are Miners Selling?

Bitcoin miners may be the heart and soul of the world’s largest blockchain as they are responsible for producing new bitcoins, confirming transactions, and maintaining the security of the network.

While the last part is particularly true in recent months and years, as bitcoin’s hashrate is on the rise, miners have felt the negative consequences of this, especially as the block rewards will decrease in the coming months after the fourth halving.

Since they need to cover costs and make a profit, miners often capitalize on price increases by selling portions of their bitcoins. Large mining companies, according to Crypto Quanta data, deposited large amounts of bitcoin on exchanges yesterday amid the price surge to 46 thousand dollars, after which a sell-off usually follows.

Frenzy and Greed

As a relatively new financial asset operating in a free market, bitcoin is often quite volatile. There are no days off; it trades 24/7, 365 days a year, attracting speculators and those eager for quick profits. This leads to impressive gains but also massive losses for greedy investors.

In general, bitcoin tends to correct by double-digit percentages within a few weeks after an impressive rise, but this has not been the case so far during the price surge at the end of 2023. Just two days ago, there were warning signs. Amid the rise to nearly 46,000 dollars, the Relative Strength Index (RSI) showed a caution signal as it entered the ‘overbought’ territory on the four-hour chart.

Additionally, the Fear and Greed Index jumped above 70, indicating that investors had become quite greedy. And, as Warren Buffett’s saying goes, be fearful when others are greedy. A sharp pullback usually follows such market sentiment.