The general sentiment in the market has flipped bullish, as Bitcoin moves into the mid-range of its current levels. The first cryptocurrency by market cap has been making its way back from the lows and trades at $35,375 with a 10.5% in the weekly chart.
In the coming days, further appreciation seems probable if BTC’s price managed to break above and sustained the monthly open at $35,000. This weekend’s pump has been an important step towards that goal.
However, pseudonym trader NebraskanGooner recommends caution as Bitcoin has been rejected around its current levels after it usually retraces lower. He added:
(…) current market conditions have proven we can’t get excited at resistance. I can’t help but think that everyone’s still just blindly buying & max pain would still be down 1st.
Alex Mashinsky, a founder at Celsius Network, shared a similar thesis. He believes Bitcoin has undergone 2 capitulation selling events over May and June. The first one was driven by retail investors FOMO buying when BTC’s price stood at its all-time high, $65,000.
These investors sold at a loss when BTC’s price dropped to the high area at $40,000 and continue to do so as the downtrend extended. The second capitulation event was driven by the mining sector.
China’s crackdown on BTC miners forced them to sell a portion of their holdings to migrate their operations out of the country. In addition, regulators in the Asian giant shut down bank transactions related to cryptocurrencies.
The Grayscale Effect In The Price of Bitcoin
In total, around $6 billion were sold by retails investors in May, miners, and China users in June. The third capitulation event could be the final, but the worst of the current year. Mashinsky said:
We are about to get one more wave of selling… mostly from the FOMO $20B worth of GBTC arb institutional trade. Hedge funds used leverage loans from Genesis Trading and others to buy BTC in Jan/Feb 2021 that will become unlocked for the first time starting next week…
The Grayscale Bitcoin Trust buys the underlying asset and offers its clients GBTC shares. These can trade at a discount or premium in relation to the spot market. The Trust’s shares remain “locked” for these investors for a 6-month period.
After, they are free to trade their shares in the market and leverage the premium. GBTC shares will be “unlocked” in the coming weeks. If most institutions bought GBTC shares when the price was in the $20,000 and low $30,000, selling their shares at a higher price will turn in a
Mashinsky believes this event will negatively impact Bitcoin’s price, as Grayscale will need to “sell BTC” to compensate for those Hedge Funds looking to exit their positions. Later, BTC’s price could finally see a respite and climb back to previous highs and beyond. He added:
At least $5B will have to be unwound off $GBTC which may take BTC prices back to the $29k levels. After this July sell off we should see smooth sailing for the rest of the year as we break new ATH on our way to the $140-160k price range per BTC…
July will be a crucial month for Bitcoin. Major forces seemed to be operating in the market for the time being. To continue its rally, it seems imminent that BTC will revisit fresh lows and shake out overleverage players.
The trust can not just hold BTC And see GBTC shares sold at a bigger and bigger discount.
The Hedge Funds need to get out and some will be liquidated as they borrowed 4:1 to buy the BTC to do the Arb
Grayscale is trying to hold the discount below 25% to avoid this— Alex Mashinsky ©️ (@Mashinsky) July 3, 2021