Bitfinex Alpha | BTC Sees Healthy Pullback, but Outlook Uncertain

Bitcoin retraced 10 percent intra-week, driven primarily by aggressive spot selling and a broader market unwinding of leveraged positions. After reaching a local high of $66,587 on September 27th, Bitcoin’s price fell sharply, particularly after losing the key $65,200 level, triggering cascading long liquidations. This resulted in a decline to $60,000, which aligned with our forecasts expressed in last week’s  Bitfinex Alpha, for  a 5-10 percent pullback given the high levels of open interest (OI) and lack of spot market buying.

Indeed, spot market selling last week was exacerbated by escalating geopolitical tensions between Iran and Israel, which intensified de-risking and led to long liquidations amounting to $450 million on October 1st. As Bitcoin experienced its first consecutive series of four red days since early August, the market saw a healthy realignment, with OI decreasing from overheated levels above $35 billion to $31.8 billion. This reduction in OI suggests that market conditions are relatively stabilised, with the risk of abrupt price movements now lower. 

Bitcoin rebounded to $62,500 on October 4th, following positive labour market data, and rose to as high as $64,027 in early sessions on October 7th when some amount of spot buying aggression returned, however, it is still too little too soon to make definitive conclusions about short-term market direction. Several altcoins also showed significant volatility, with large-cap assets like XRP and APT moving 15-20 percent in either direction. As the market remains reactionary, clues for future direction for BTC and the market, in general, may lie in any positioning seen in early-week trading sessions, particularly in the US.

The labour market data which had buoyed the market showed that in September, it had seen its strongest job gains in six months, with unemployment dipping to 4.1 percent from 4.2 percent in August, signalling the resilience of the economy. However, while labour remains robust, other sectors have yet to feel the benefit of loosening monetary policy. The Federal Reserve is expected to lower interest rates again in November, yet the manufacturing sector continues to feel the pressure of higher rates, along with reduced demand compared to last year.

Despite challenges in manufacturing, the US service sector saw a sharp rise in new orders in September, reaching its highest activity level in 18 months.

This surge suggests ongoing economic strength through the third quarter of 2024, even as different sectors experience varying strain levels.

In terms of newsflow last week, the International Monetary Fund has urged El Salvador to reduce its exposure to Bitcoin, recommending adjustments to its Bitcoin law and advising enhanced regulatory oversight to minimise public sector involvement. These discussions are part of broader efforts to stabilise the country’s economy. While domestic adoption is growing slowly, President Bukele still sees Bitcoin as a net positive for El Salvador’s long-term growth.

Meanwhile, Metaplanet Inc. recently generated $1.46 million through selling Bitcoin options, further strengthening its Bitcoin reserves. With a total of 530.717 BTC now held by the company, CEO Simon Gerovich emphasised how Bitcoin’s inherent volatility provides opportunities for yield generation, complementing their direct holdings.

In a separate development, David Carmona, founder of IcomTech, was sentenced to nearly 10 years in prison for running a Ponzi scheme that promised profits from cryptocurrency-related ventures. The company’s collapse in 2019 resulted in significant losses for investors.

Have a great trading week!

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