Bitcoin price recovery at risk due to DXY strength, GBTC selling

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Bitcoin traders are reeling from the current (BTC) price sell-off as the recently launched spot Bitcoin ETFs failed to produce the desired price upside. Aside from the steady GBTC outflows impacting BTC price, market participants are now facing yet another problem: a strong U.S. dollar.

The U.S. dollar’s sharp recovery

The U.S. dollar Index (DXY), which tracks the greenback’s performance against an array of top foreign currencies, has risen 2.71% from its Dec. 27 low of 100.617 amid encouraging U.S. economic data.

Retail Sales, the Philly Fed Manufacturing Index, and weekly Initial Jobless Claims, all provided tailwinds to the USD Index, lifting it to new 2024 highs in the 103.65-103.70 range.

Data from the U.S. Census Bureau shows that December 2023 retail sales registered 0.6% growth against the expected 0.4% and 0.3% from the previous period.

The dollar’s recovery has also been attributed to a rebound in U.S. yields across the curve, all in response to declining bets on the likelihood that the Federal Reserve (Fed) might start cutting interest rates as soon as March.

From a technical perspective, the U.S. dollar Index looks poised to rise by more than 1.12% due to the formation of a classic V-shaped recovery pattern.

DXY 1-day chart. Source: TradingView

If the DXY successfully breaks above its neckline of 104.56, the likelihood of an extended recovery toward 107 over the next few months is higher.

Massive GBTC outflows impact BTC price

Since the spot Bitcoin ETFs were launched on Jan. 11, massive outflows have been witnessed from the Grayscale Bitcoin Trust (GBTC). As a result, Grayscale has liquidated a large number of Bitcoin as part of its GBTC holdings. Nearly 38,000 BTC has left GBTC since it was converted to a spot ETF on Jan. 11.

There were $484 million in outflows from Grayscale on Friday alone as GBTC holders capitalized on open redemption options.

In a recent statement, popular economist and gold bug Peter Schiff suggested that despite the approval of the spot Bitcoin ETF, the price of BTC is not increasing due to outflows from Grayscale’s GBTC product. He mentioned that even though the total inflows were larger, it seemed to have a limited impact on the overall BTC market.

Related: Bitcoin trader who called $48K BTC price top flags new bearish signal

Bitcoin price could retrace to $34,000

Independent market analyst Ali has pointed out the movement of the BTC price in an ascending parallel channel since late 2022. According to Ali, Bitcoin’s current correction is due to rejection from the channel’s upper boundary at $48,000.

The analyst anticipates a retracement for Bitcoin, projecting a decline to the lower boundary at $34,000.

However, market intelligence firm Santimet said the market was still optimistic about the long-term impact of the spot Bitcoin ETFs approved by the U.S. Securities and Exchange Commission on Jan. 10.

The firm posted the following chart on X social media platform, adding,

“However, the #FOMO surrounding the approvals arguably helped mark a local #crypto top, as many experts believed that the foregone conclusion of these approvals was already ‘baked in’ to the market’s prices at the time the announcements were made.”

BTC price performance. Source: Santiment

After Bitcoin experienced a 16.9% drop from $49,000 last week to $40,600, Santiment said that the narrative surrounding these ETFs might shift to “associating them with words like #scam or #ripoff or #disaster.”

If a bearish sentiment emerges around the subject that initially drove prices higher from October through December, Santiment anticipates fear, uncertainty, and doubt (FUD) could trigger a series of selloffs from novice traders.