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What’s The Driver Behind The Lastest BTC Sharp Pullback?

24 November 17:31

[TL; DR]

1. On November 22nd, U.S. president Joe Biden announced that he would nominate Jerome Powell for a second term as the Fed chair.

2. It’s expected that Powell will normalize monetary policy without disrupting the markets during his next four-year term.

3. Powell's re-election implied continuity in Fed policy and market expectations for Fed rate hikes were further consolidated.

4. Taper Tantrum and potential rate hikes may be among the reasons for the Bitcoin market's recent underperformance.

5. BTC plunge may also be credited to the SEC's rejection of Bitcoin spot ETFs.

6. The SEC has presented seven reasons for rejecting the Bitcoin spot ETFs.

On November 22nd, U.S. president Joe Biden announced that he would nominate Jerome Powell for a second term as Federal Reserve chair, and Lael Brainard (Powell’s main competitor), serving on the Fed’s Board of Governors, as vice chair.

In 2017, Powell was nominated by former U.S. President Donald Trump to chair the Federal Reserve. During the previous administration, he maintained the independence of the Fed under immense political pressure and gradually implemented quantitative tightening policies. Faced with stocks crash caused by the Covid-19 epidemic in 2020, the Fed under Powell's leadership was equally responsive, decisively cutting interest rates and initiating unlimited quantitative easing on March 23rd. This provided markets with massive liquidity and is conducive to ensuring U.S. stock markets operate as normal.

The Fed QE policy has spawned a boom in global investment markets. Particularly in the crypto space, Bitcoin has played the role of an anti-inflationary asset, with record prices and a total market cap of over $1 trillion that continues today. The pump-priming policy of Fed, however, has also led to severe inflation. Powell's next four-year term will see a gradual reduction in economic stimulus measures. What’s more, he will tackle and ease inflation in a gradual manner, and try to normalize monetary policy without disrupting markets.

Powell and Brainard are widely considered to be dovish leaders. Powell's re-election implied continuity in Fed policy and market expectations for Fed rate hikes were further consolidated. As a result, U.S. tech stocks were under pressure to fall, especially the Nasdaq which dipped 1.26% on the day when Biden announced that he would nominate Jerome Powell for a second term as Fed chair. At the same time, major bank stocks, US 10-year Treasury yields, and the U.S. Dollar Index rose in response.

Meanwhile, both the price of gold and Bitcoin fell sharply as real interest rates rebounded in

In fact, since the price reached an ATH of $68,990 on 10 November, Bitcoin has been on a "downward spiral", with the price dropping by 20% in a fortnight. In our previous article (What Will Happen to Crypto If The Fed Begins Tapering?), we have analyzed the impact of the Fed Taper on the crypto market. But in the case of this pullback, there may be more to it than that.

SEC’s Rejection of Bitcoin Spot EFTs May Cause the BTC Plunge Last Week

The first exchange-traded fund(ETF) linked to Bitcoin futures was approved by SEC and began trading on the New York Stock Exchange on October 19th. A historic moment in the Bitcoin compliance process. Bitcoin futures ETFs provide tremendous access to BTC-related financial products for the average U.S. investors and add a new source of capital for the BTC market. Following the SEC's approval of Bitcoin futures ETFs, Bitcoin soared by 40% in price within a month. This was followed by the SEC's approval of another BTC ETF, the Valkyrie1637750195591819ETH, on October 22nd.

In addition, according to CoinShares, the launched ETFs saw over 90% of inflows into Bitcoin, despite the price correction last week. The significant impact of EFTs on the Bitcoin market is evident. After the two futures ETFs were approved by the SEC, the market is expecting the spot ETF application to progress as well.

For more information on the impact of the SEC's approval of Bitcoin futures ETFs on the crypto market, please read on
Futures-Backed Bitcoin ETF - A Big Driver of BTC Hitting $60,000

Unfortunately, the application process for spot ETFs, which have a greater impact on the crypto space, did not go smoothly. On November 12th, the SEC rejected VanEck Bitcoin spot ETF proposal with seven reasons in its response.

1）“Wash” trading;

2）Persons with a dominant position in Bitcoin manipulating Bitcoin pricing;

3）Hacking of the Bitcoin network and trading platforms;

4）Malicious control of the Bitcoin network;

5）Trading based on material, non-public information, including the dissemination of false and misleading information;

6）Manipulative activity involving the purported “stablecoin” Tether (USDT);

7）Fraud and manipulation at Bitcoin trading platforms.

Since futures ETF products are based on CME Bitcoin futures that are currently under supervision, the price is relatively stable and the risk is low, while the price of Bitcoin spot is more volatile. It makes sense that the SEC approved the futures ETF and rejected the spot ETF. With the negative news, although the price of Bitcoin reached a new all-time high some time ago, plenty of investors did not continue to hold BTC and instead withdraw their profits and invested them in other capital markets such as U.S. stocks.

As Bitcoin spot ETFs have already been approved in countries such as Canada, it is reasonable to assume that the SEC will gradually lower the threshold for approving them as the relevant regulatory system continues to improve and the SEC's understanding of the BTC market deepens. It is believed that Bitcoin will then take another big step towards full compliance.

Author: Edward. H, Gate.io Researcher
* The article only represents the researcher’s views and does not constitute any investment advice.
* Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.

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