The enthusiasm for spot Bitcoin ETFs waned after Bitcoin retraced the entire 19% rally that followed BlackRock’s initial ETF filing, settling back around $26,000. An attempt to reclaim the $28,000 support also failed as investors anticipated ETF approval following Grayscale Bitcoin Trust’s (GBTC) positive news.

Cryptocurrency investors’ morale waned as the S&P 500 neared its all-time high, and gold remained distant from its peak. This environment has left Bitcoin investors less optimistic than anticipated, especially with the upcoming 2024 halving.

Regulatory Challenges

Some analysts attribute Bitcoin’s lackluster performance to ongoing regulatory actions against major exchanges like Binance and Coinbase. Reports also suggest that the U.S. Department of Justice (DOJ) may indict Binance, adding to market uncertainties.

While some believe the potential gains from a spot ETF approval outweigh regulatory actions against exchanges, this analysis may not fully consider the current state of U.S. inflation, which has decreased from 9.1% in June 2022 to 3.2% in July 2023. Additionally, the U.S. Federal Reserve has reduced its total assets, draining liquidity from markets, potentially affecting Bitcoin’s inflation protection narrative.

Bearish Bitcoin Derivatives

Bitcoin monthly futures’ premium over spot markets has dwindled to 3.5%, the lowest since mid-June. This suggests reduced demand from leverage buyers using derivative contracts. Options markets also show signs of bearish sentiment, with protective put options trading at a 9% premium compared to call options.

Bitcoin derivatives data indicates that bearish momentum is gaining strength, particularly due to potential ETF approval delays until 2024, driven by SEC concerns about unregulated offshore exchanges and stablecoins. Regulatory uncertainties favor bearish sentiment, making a retracement to $22,000 the most likely scenario, given the recent struggle to sustain positive price momentum despite spot Bitcoin ETF prospects.