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On Oct. 2, the price of Bitcoin (BTC) saw a 5.5% intraday increase to $28,600 but the largest cryptocurrency by market cap lost momentum as the highly anticipated launch of Ether futures exchange-traded funds (ETFs) failed to generate significant trading volumes. 

While the recent rally into the upper end of the current price range was likely encouraging to investors, recent comments from U.S. Federal Reserve representatives reiterated concerns about an impending economic downturn.

Bitcoin demonstrated short-term strength by maintaining support at $27,200 on Oct. 3 and subsequently surged above $27,500 on Oct. 5. Nevertheless, three key trading metrics indicate a lackluster level of support. These metrics encompass spot market volumes, derivatives, and confidence in the approval of a spot Bitcoin ETF.

Macroeconomic forces exert downwards pressure on Bitcoin price

On Oct. 2, U.S. Federal Reserve Vice Chair for Supervision, Michael Barr, stated in New York that he anticipates a slowdown in economic growth “below its potential” due to higher interest rates constraining economic activity. He also noted that the full impact of the current monetary policy has yet to be realized. According to the CME FedWatch tool, the market is currently evenly divided on the possibility of another interest rate hike by the Fed in 2023.

On Oct. 3, the real yield on U.S. 10-year Treasuries, a measure that adjusts for inflation, reached 2.47%, its highest level in nearly 15 years, according to data from the U.S. Treasury Department. This development partly explains the U.S. Dollar Strength Index (DXY) reaching its highest point in 10 months.

Additionally, Reuters reported that the U.S. has become a relatively more appealing investment destination due to its “resilient economy.” It boasts stronger growth prospects when compared to Europe and China.

Bitcoin trading metrics show diminished activity for leverage longs

Bitcoin monthly futures typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement. As a result, BTC futures contracts should typically trade at a 5 to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

Bitcoin 2-month futures annualized premium. Source: Laevitas.ch

The BTC futures premium continues to trade below the 5% neutral threshold, remaining in the neutral-to-bearish range. This indicates a lack of demand for leveraged long positions.

Additionally, spot trading activity on traditional exchanges has declined to levels not seen since late 2020, signifying reduced participation by institutional investors.

Bitcoin daily spot trading volume, USD. Source: Messari & Kaiko

It’s worth noting that the decrease in trading volumes may be attributed to major U.S.-based trading firms, such as Jane Street Group and Jump Trading, distancing themselves from the cryptocurrency markets ahead of May 2023. Bloomberg reported that the primary reason for this shift was “heightened regulatory scrutiny,” which rendered the market less appealing to institutional investors.

Related: Bitcoin price drops its early week gains — Here is why

Investors’ expectation for a spot BTC ETF drops

One of the factors supporting Bitcoin’s 68% gains in 2023 is the anticipation of approval for a spot Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC). However, despite the regulator’s multiple postponements, the recent launch of Ether futures-based ETFs on Oct. 2 saw lackluster demand.

Furthermore, despite a favorable court ruling for the conversion of Grayscale’s GBTC Trust into a spot Bitcoin ETF, it continues to trade at a 19% discount compared to its Bitcoin holdings. This data indicates a lack of confidence in the approval of a spot Bitcoin ETF, as investors would have the option to redeem their shares at par value following the conversion.

Ultimately, Bitcoin was unable to surpass the $28,500 resistance level, and Federal Reserve representatives warned of impending economic pressures. Consequently, the prospects of breaking above this resistance in the short term appear less than favorable.