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Crypto Market Reacts: Bitcoin Dips to $27.2K as Grayscale's Legal Victory Settles In

Aug 30, 2023 at 09:02 pm

Several indicators point towards potential weaknesses in the market despite the rally seen on Tuesday, as highlighted by market observers.

Bitcoin (BTC) retraced from its recent peak above $28,000 on Wednesday, prompting investors to contemplate the repercussions of Grayscale's legal triumph over the U.S. Securities and Exchange Commission (SEC).

The foremost cryptocurrency by market capitalization experienced a 2% decline in the last 24 hours, settling at $27,240. Meanwhile, Ether (ETH) showcased slightly better performance, registering a 1.7% dip within the past 24 hours, with its value hovering just above $1,700.

The broader cryptocurrency market followed suit, mirroring the movements of the two leading assets. The Bitsday Market Index dropped by 2.4%.

Major altcoins like Cardano's ADA, Solana's SOL, and Polygon's MATIC led the downturn, witnessing a nearly 4% fall throughout the day, which wiped out most of their gains from Tuesday.

A federal appeals court's decision instructed the SEC to reevaluate its rejection of Grayscale's proposal to convert its $14 billion Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin exchange-traded fund (ETF). This ruling spurred an immediate surge in digital asset prices and stocks associated with the crypto sector.

Market experts hailed this verdict as a pivotal victory that could potentially lay the groundwork for a spot BTC ETF in the future. During the summer, numerous investment firms submitted or renewed their applications for listing such a product, including the traditional financial heavyweight BlackRock. Nonetheless, it's important to note that the recent ruling does not automatically guarantee approval for Grayscale's application or any other similar applications.

Assessing the sustainability of the BTC rally

While it remains premature to determine the longevity of Tuesday's price surge, Clara Medalie, Director of Research at Kaiko, noted in an interview with Bitsday that "there are some indications that we might witness a minor reversal." She highlighted the fact that the rally was accompanied by relatively modest trading volumes on exchanges compared to other "mini bull markets." The trading volume is indicative of participants' involvement in the market, and the subdued volume figure might suggest underlying weakness behind the upward movement.

However, the average volume of BTC buy orders surged to its highest point since June, implying activity from significant investors, which Medalie interpreted as a positive sign. She commented, "A wave of ETF approvals could definitely be the bullish catalyst the crypto market needs right now," while also noting the ongoing challenges in the industry such as bankruptcies and lawsuits.

Market analyst Garreth Soloway anticipated potential further declines in Bitcoin's price if it fails to establish a decisive breakthrough above the $28,000 level that was prevalent before the mid-August sell-off. He explained that "$28,000 is the price level at which the BTC price broke down. It is not uncommon for price to retrace to that level after a correction." Soloway added that the longer Bitcoin trades in a sideways range, the greater the likelihood of a substantial price decline. He also identified the $25,000 support level, which Bitcoin held in mid-June when BlackRock filed for a spot BTC ETF, as a critical level to monitor.

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