October, often referred to as "Uptober" by crypto enthusiasts, has historically been a strong month for the Bitcoin market: 9 out of 11 Octobers in the bitcoin existence have delivered positive returns. The question remains: will this year follow the same pattern?
Market Absorbing Sell-Offs
This year, two significant bitcoin sell-offs raised concerns: the German government’s sale of 50,000 BTC seized from law enforcement and the long-awaited distribution of 141,687 BTC to creditors of the defunct Mt. Gox exchange. With bitcoin's current limited liquidity and a market cap around $1.2 trillion, these sales, valued at approximately $11.7 billion (at current rates), had the potential to drastically impact prices. However, the anticipated fallout appears to have been overestimated.
The hasty German sale caused a 15% drop in bitcoin’s price in July, but the market rebounded swiftly. As for Mt.Gox, according to the Arkham Intelligence data, an estimated 96,781 BTC has been transferred to creditors since July without significantly affecting the market. This suggests the market either had the capacity to absorb the additional bitcoin or that many creditors chose to hold onto their coins rather than sell.
A liquidity boost potentially improving the market situation could soon come from FTX. Recently, a part of the collapsed exchange’s creditors, who represent about $6.83 billion in claims by value, agreed to a restructuring plan, as reported by Coindesk. The plan is expected to return 118% of claims in cash, and once the bankruptcy Court approves it, a portion of these funds may be reinvested in the crypto market, potentially contributing to further market stability.
Investors Still Confident
The potential influx of funds from FTX creditors could come at a beneficial time for the bitcoin market, which has experienced slowing capital inflows since its March all-time high. For Glassnode analysts, the current market structure resembles the 2019-20 period, when the market went through an extended consolidation after a strong rally in mid-2019.
Since late June, bitcoin’s price has fallen below the cost basis for many short-term holders, leading to growing unrealized losses. Typically, this would increase the likelihood of these investors selling at a loss. However, over the past few months, new investors who bought in the last 155 days have shown more resilience compared to previous bearish trends. The extent of their losses remains relatively modest compared to their cost basis, signaling continued confidence in the market.
Despite this optimism, the Fear & Greed Index, which held steady at “Neutral” for some time, has now shifted to “Fear” due to rising geopolitical tensions, adding an element of uncertainty to the market's outlook.
Bitcoin Reacts To Economic Stimulus
Yesterday, bitcoin, along with broader financial markets, saw a sharp decline following missile attacks from Iran on Israel. This highlights that bitcoin remains a risk-sensitive asset, reacting negatively to heightened political uncertainty and the potential for a wider conflict.
On the flip side, this also means that bitcoin still reacts positively to the economic stimulus The Federal Reserve’s recent 50 basis-point rate cut contributed to a 12% surge in BTC’s price. Similarly, the People's Bank of China easing its monetary policy has fueled optimism about more capital flowing into the bitcoin market.
For QCP Capital, a Singaporean crypto trading firm, the "liquidity boost from the PBoC and potential fiscal support" is likely to lift asset prices in China, with bullish sentiment potentially extending globally to support risk assets like crypto. While Middle East geopolitics may dominate headlines for now, QCP believes that investors should keep their focus on the broader macroeconomic landscape.
Institutional interest growing
Institutional investors appear to be regaining interest in crypto, indeed. According to Coinshares, crypto investment products saw a third consecutive week of inflows, totaling $1.2 billion. The firm attributes this renewed interest to ongoing expectations of a more accommodative monetary policy in the U.S.
Moreover, institutional investors will soon have even more bitcoin-based products at their disposal. Last Friday, the SEC approved Nasdaq-listed options on BlackRock’s spot BTC ETF, a move that was both anticipated and long-awaited, with proposals initially filed in January.
While CME already offers BTC options, some traders find these contracts relatively expensive, complex, and low in volume. The introduction of BTC-related options on Nasdaq, combined with the SEC’s recent green light for BNY Mellon (and potentially other banks) to begin custodying crypto assets, could further drive demand for bitcoin by making institutional access easier and more cost-effective.