Bitcoin reaching for the reset button

Late Sunday night into early Monday, Bitcoin tumbled below $42,000. The indignity occurred after BTC had triumphantly lunged to $49,000 last Thursday, at the height of ETF approval mania, and just prior to the onset of a sell-the-news pullback.

Bitcoin still could be vulnerable to further profit-taking selling pressures in the short-term, an analyst at Japanese exchange bitBank told CoinDesk earlier today.

Looking beyond the near-term horizon, however, significant upside conceivably could be in the cards, with ETF flows set to ramp up, a springtime halving event and the prospect for lower interest rates, per a litany of bullish-leaning analysts.

CoinDesk, citing bitBank, stating the obvious, which bears repeating: $40,000 is now an all-important psychological level if any bullish thesis is to stand.

Shortly before 8 a.m. (EST), BTC slithered up the bottom lip of $43,000. "Nice bounce," said Skew, a popular X platform pundit.

BTC's Relative Strength Index (RSI) score stayed above 50 (out of 100), Cointelegraph pointed out. And the largest crypto held its 2024 start-of-year price near $42,250, indicating support.

Meanwhile, the Crypto Fear & Greed Index dipped into "neutral" territory (52/100) for the first time since November (Decrypt).

In the past few days, the total crypto market fell from roughly $1.9 trillion to $1.7 trillion, according to CoinGecko.

Still, most Big Ten coins are green over the past seven days.

XRP is stiff (-0.3% in 24 hours) following a scary start to the week. As it turns out, the XRP Ledger network was targeted by a hacker who tried to initiate an outrageously outsized transaction on Bitfinex, involving half of XRP’s total market cap, which at the moment sits in excess of $30B.

Only a few cents worth of XRP actually wound up being transferred in an exploit that appears to have been thwarted by basic liquidity guardrails (CoinDesk).

As Bitcoin's whirlwind of a week wound halfheartedly toward its conclusion on Sunday afternoon, the largest crypto confronted a -2.7% return over seven days.

Second-largest crypto Ethereum, on the other hand, had notched a +12.6% return on the week. ETH rose to as high as $2,700 on Friday.

Speculators seem confident spot ETH funds will come to pass, keeping in mind the Grayscale effect.

We're not talking about some discount premium. Grayscale's filing of a lawsuit against the SEC not only proved to be a huge turning point in digital asset management's ETF odyssey, but the legal precedent continues to hang overhead like a grand piano on a rope.

It was during crypto's first true heyday, back in 2017, that Grayscale initially asked for permission to turn its Bitcoin Trust (GBTC) into an ETF. Created in 2013, GBTC was one of the first security instruments ever tied to spot BTC. Unlike ETFs, which, like mutual funds or public companies, are required to register with the SEC, GBTC stood exempt. That’s because shares were only sold to accredited investors via private placement.

These earliest investors, adhering to holding periods, eventually were free to resell GBTC shares on the secondary market. Starting in 2015, GBTC shares started trading on the OTCQX market. Secondary market participants (anyone with a brokerage account that offered OTC access) could buy or sell GBTC in unfettered fashion.

"The supply of unrestricted shares in the secondary market grew, and liquidity developed," said GSR, a crypto liquidity provider.

In recent years, however, demand for GBTC waned. Shares traded at a discount. New competitors arrived: other private funds; publicly listed trusts; BTC futures ETFs; and direct access to the largest crypto via an ecosystem of exchanges and custodians.

In late June of 2022, the SEC rejected Grayscale's application to make GBTC an ETF. The next day, Grayscale sued the agency, arguing it behaved arbitrarily, considering previous decisions to approve other forms of BTC ETFs, including products based on futures.

This past October, the SEC approved the first ETH-futures-based ETFs. This move opened the door to another potential legal challenge, similar to Grayscale's, if any spot ETH ETF product applications wind up getting rejected.

Based in part on regulators' seemingly knotted hands, Bloomberg’s Eric Balchanus says he is confident that a spot ETH ETF will be approved by Q2, putting probability odds at 70%.

Further buttressing confidence levels is the sheer esteem of the applicants involved this time around.

In November, BlackRock filed just such an application; recall how the behemoth's BTC ETF bid in itself turned into a sizable momentum boost this summer.

“These are not minor companies,” Adam Berker, senior legal counsel at payments platform Mercuryo, told Decrypt. “BlackRock and Grayscale both have considerable influence.”