Bitcoin (BTC) has remained stuck in a price range between $90,000 and $100,000 for the third consecutive week, with the exception of a brief spike above $100,000 on December 5. This indecisiveness in price movement has left traders feeling uninspired, with two main factors contributing to the delay in further gains.
First, the influx of liquidity into the crypto market, especially from sources like spot exchange-traded funds (ETFs), has slowed considerably. This has diminished the bullish momentum that had been driving prices higher. According to 10x Research, the market liquidity impulse index, which tracks stablecoin mints, BTC ETF inflows, and futures market changes, has fallen by more than half, from over $15 billion in early November to just $7 billion recently. This slowdown in liquidity growth is one possible reason why Bitcoin has struggled to maintain levels above $100,000.
“The decrease in liquidity may help explain why Bitcoin is finding it hard to hold above $100,000,” said Markus Thielen, founder of 10x Research. He pointed out that the liquidity indicator is diverging negatively from Bitcoin’s price, with lower highs being formed.
Stablecoins, which are pegged to assets like the U.S. dollar, are commonly used to fund crypto purchases. ETFs, on the other hand, have become a popular investment vehicle for those seeking exposure to crypto without directly owning it. The same applies to CME’s cash-settled futures.
The second factor, often overlooked by many analysts, is the slowdown in Nvidia’s (NVDA) rally. As the world’s largest chipmaker and a key player in AI, Nvidia has become a bellwether for risk assets, particularly following the launch of ChatGPT in late 2022. Bitcoin and Nvidia both bottomed out in late 2022 and have since shown a strong positive correlation, except for a brief period over the summer when fears of oversupply kept Bitcoin from mirroring Nvidia’s rise. Currently, the three-month correlation between Bitcoin and Nvidia is 0.6.
Analysts at TheMarketEar believe that Bitcoin’s surge from $70,000 to $100,000 post-U.S. election reflects it catching up to Nvidia’s performance. Despite the two assets having little in common fundamentally, they share similar market psychology, according to the analysts. Nvidia has outperformed Bitcoin in 2023, with Bitcoin rising 130% year-to-date, while Nvidia has surged by 172%.
However, Nvidia’s momentum has stalled since mid-November, and prices are now showing signs of a bearish reversal pattern, such as a head-and-shoulders formation. Additionally, the one-year put-call skew has flipped to neutral, with calls and puts trading at parity, indicating a shift away from the bullish sentiment that dominated earlier in the year.
With bullish excesses now crowded out of the crypto market, as discussed in Tuesday’s Crypto Daybook Americas, the market has returned to healthier leverage levels. Bitcoin could potentially make another attempt at breaking through the $100,000 barrier, but the sustainability of this breakout will largely depend on liquidity inflows and broader market sentiment.
