Bitcoin faced a sharp decline on Wednesday, wiping out most of its early gains this year. Fadi Aboualfa, head of research at crypto custodian Copper Technologies, discussed the expected increased volatility in the short term.
One of the key topics of discussion revolved around the looming decision by the Securities and Exchange Commission (SEC) regarding Bitcoin Exchange-Traded Funds (ETFs). Aboualfa opened up about the anticipation of heightened market fluctuations, especially as the critical date of January 10th approaches. The SEC’s decision on ETFs is a pivotal moment for the cryptocurrency market, and the uncertainty surrounding it is believed to contribute to the current volatility.
On Bloomberg Technology, Aboualfa pointed out the importance of this moment in the history of cryptocurrencies, emphasizing how discussions have shifted from questioning the approval of ETFs a year or two ago to predicting when it will happen. He highlighted the inevitability of ETF approval, with major players like BlackRock having a strong track record of successful applications. However, the timing of the approval remains a focal point for the markets, causing some short-term volatility.
“We could see Bitcoin drop as well. It’s not inconceivable to see that Bitcoin can drop to $37,000. A lot of analysts that look outside the traditional markets and they look at the blockchain activity are arguing that we could see a correction to $37,000, maybe lower. If you ask me, if I look at sort of a revision to the mean, you could even argue that it could go to $27,000.”
Addressing Bitcoin’s correlation with traditional markets, Aboualfa noted that Bitcoin is currently trading somewhat like a tech stock, with correlations peaking since May 2023. Despite this correlation, Bitcoin has shown resilience, especially when compared to recent market movements, such as those in the Nasdaq.
The discussion also touched upon the potential scale of inflows that could occur once a spot Bitcoin ETF is approved. Aboualfa expressed caution, stating that the crypto market is still in a stage of some speculation, with considerable leverage in the system. He stressed the need to differentiate between short-term traders seeking volatility and long-term investors looking for security in their digital assets.