Why is Bitcoin price volatile today?

Bitcoin price rallied to $48,000 on fake news that the SEC had approved spot BTC ETFs.
Bitcoin price rallied to $48,000 on fake news that the SEC had approved spot BTC ETFs.

Bitcoin (BTC) price shot up to over $48,000 after the SEC appeared to announce that all spot BTC ETFs were approved. Before the regulator even had a chance to address the erroneous tweet, Bitcoin price had already retraced to nearly $45,000, a move that would have confirmed traders’ suspicion that an approval would be a sell-the-news event. 

As market participants and crypto advocates learned that the spot ETF approval was incorrect, many complained that the hack of the SEC’s X account was reminiscent of a pump-and-dump scheme.

Bitcoin price USD. Source: TradingView

Some analysts believe the SEC may be in violation of market manipulation laws after the hack, and Senator Bill Hagerty is already calling for answers from the SEC.

While the market has benefitted from the expectation of a spot BTC ETF approval, there are traders who anticipate the event to be a “buy the rumor, sell the news” event that played out in real-time on the fake approvals.

Bitcoin monthly returns. Source: Newhedge

Let’s look into the reasons why Bitcoin price is volatile today.

SEC X account hack wipes out leveraged longs and shorts

As headlines reported that the SEC’s social account was hacked, up to $1 billion in open interest was wiped out in the Bitcoin futures market.

BTC/USDT 1-hour chart. Source: Velo

An interesting outcome of the ETF approval scandal is the way Ether (ETH) reacted in its ETH/USD and ETH/BTC pair.

While some analysts believe the Bitcoin price is pointing toward a breakout to $50,000, BTC has more than doubled the 2023 returns of gold, and the momentum has continued in 2024. MicroStrategy chairman and Bitcoin bull Michael Saylor believes a spot Bitcoin ETF would be the biggest thing to happen to all of finance since the S&P 500 launched.

Bitcoin vs. gold ratio. Source: Longtermtrends

The positive sentiment around Bitcoin led the BTC market cap to surpass Berkshire Hathaway on Dec. 5, and it has remained the 10th-biggest asset by that measure. Despite BTC’s strength, the SEC continues to proceed cautiously, reissuing a warning against FOMOing into crypto on Jan. 6. On Jan. 8, the SEC released another warning on crypto despite an approval seeming imminent.

Related: Cory Klippsten’s warning for ‘shitcoin traders’ in the bull market: X Hall of Flame

According to reports, an approval may generate $600 billion in new demand. CryptoQuant analysts believe that an ETF approval will lead to a $1 trillion increase in Bitcoin’s market capitalization. Galaxy Digital predicts a 74% price increase in the first year following a spot BTC ETF launch. Even traditional banks are seemingly bullish on Bitcoin price, with Standard Chartered estimating $200,000 per BTC by the end of 2025.

The final filings required by the spot Bitcoin ETF applicants have highlighted a potential “fee war” emerging, with the institutions all trying to be the lowest. The lowest filed fee sits at 0.2% on Jan. 8.

Spot Bitcoin ETF overview with fees. Source: Bloomberg

Bitcoin dominated 2023 institutional investor inflows

While some investors may be awaiting increased liquidity and clarity from a spot ETF approval, institutional investors have already begun deploying funds to Bitcoin and crypto. According to CoinShares, institutional investors pushed $2.25 billion into crypto funds in 2023, which is a 2.7x increase over 2022. The total year institutional inflow was the third largest on record.

Related: How will Ethereum price react to Bitcoin ETF approval?

Crypto asset institutional investor inflow into funds. Source: CoinShares

Of the $2.25 billion pushed into crypto-asset funds in 2023, $1.93 billion flowed to Bitcoin specifically. The total assets under management (AUM) for Bitcoin dwarfs other digital assets, with $36.17 billion currently deployed.

Crypto asset institutional investor asset flow. Source: CoinShares

Retail Bitcoin interest increases

Institutional investors are not the only investor cohort showing increased interest in Bitcoin. The number of Bitcoin wallets holding non-zero amounts of BTC hit an all-time high on Jan. 2. There are over 51.6 million Bitcoin wallets holding non-zero amounts.

Non-zero Bitcoin wallets. Source: Glassnode

Not only are there more Bitcoin wallets than ever before, but because of consistent month-over-month price growth, BTC’s realized cap increased. The realized cap value on Jan. 8 was $436 billion, which is only 7% shy of the all-time high.

Bitcoin realized cap. Source: Glassnode

While the realized cap is up, the active Bitcoin supply relative to vaulted supply is down, which suggests that holders have yet to release dormant coins into circulation. The vaulted supply shows a bullish trend beyond long-term holders, as they are coins that have not moved at all within the BTC network.

Active and vaulted Bitcoin supply ratio. Source: ARK Investment Management

The spike in non-zero wallets, vaulted Bitcoin supply and increased realized cap highlights strong bullish optimism.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.