Analyzing the Factors Behind the First Crypto Market Decline of 2024 and Potential Future Scenarios

In the opening week of 2024, the cryptocurrency market experienced a significant downturn, marked by a surge in selling pressure that led to the liquidation of $520 million in long positions and nearly $30 million in short positions. A key contributing factor to this market decline was Matrixport’s blog post suggesting a potential delay in the approval of Exchange-Traded Funds (ETFs) by the US Securities and Exchange Commission (SEC).

Breaking down the events surrounding the first major crypto market decline of 2024:

Matrixport’s Blog Post: On January 3, Matrixport published a blog post titled “Why the SEC will reject all Bitcoin spot ETFs.” Authored by Markus Thielen, the Head of Research at Matrixport, the post highlighted a crucial requirement missing in the filed ETFs. The research suggested a potential delay in the approval of Bitcoin spot ETFs until the second quarter of 2024, emphasizing the dominance of Democrats in the current SEC leadership and SEC Chair Gensler’s cautious stance on crypto.

Market Reaction: The market reacted swiftly to the Matrixport research, with a theoretical risk of wiping $5.1 billion in long positions added due to ETF approval news. The Bitcoin price witnessed an 8.51% drop from $45,308 to $41,454, leading to the liquidation of nearly $600 million in positions. The total open interest declined from $18.66 billion to $17.72 billion.

Estimated Leverage Ratio: The estimated leverage ratio, representing the exchange’s open interest divided by their coin reserve, experienced a significant decrease from 0.23 to 0.17, indicating a 50% reduction in leverage. A lowered estimated leverage ratio often signifies reduced risk and a potential formation of a market bottom.

365-Day MVRV Ratio: The 365-day Market Value to Realized Value (MVRV) ratio stands at 33.15%, signifying that 33.15% of investors who purchased BTC over the past year are currently in profits. The potential selling of profits by these investors could trigger another market downturn.

Considering these indicators, the 365-day MVRV ratio suggests that the recent crash might be just the beginning, particularly if Matrixport’s forecast of the SEC rejecting Bitcoin spot ETFs holds true. In the event of an ETF rejection until Q2 2024, BTC might follow a pattern similar to the 2019 mini-cycle, potentially leading to a substantial correction.

Matrixport’s projected targets for an ETF rejection point to $36,000 to $38,000, a more severe scenario could see BTC reaching the $30,000 psychological level and potentially bottoming around $24,800, sweeping equal lows. Investors are advised to monitor these developments closely and consider the potential implications for the crypto market in the coming months.

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