Main and Secondary Causes of This Pullback — Has the Bottom Been Reached?
From July 21 to November 9, Bitcoin prices embarked on a bull run from $30,000 to $69,000, a gain of 130%. After November 9, Bitcoin prices entered a correction phase, currently hovering around $56,000, a pullback of 18.8%. This correction was driven by "two main reasons" and "two secondary reasons."
1**, Main Reasons: Bitcoin Spot ETF Rejections and "Mt. Gox" Panic**
There are two main reasons for this Bitcoin price correction: the rejection of Bitcoin spot ETFs and the "Mt. Gox" panic.
Let's start with the first one.
Bitcoin ETFs have long been viewed as the most direct gateway for old money to enter the crypto space. Thanks to the efforts of numerous financial institutions, two Bitcoin futures ETFs were approved in the past two months. The Pro Shares Bitcoin Strategy ETF, which debuted on October 19, saw trading volume of nearly $1 billion on its first day, second only to the BlackRock carbon-neutral ETF that received Pre-Seed investment. On November 16, the Valkyrie Bitcoin Strategy ETF listed on the CBOE Trading, with initial fund size of $9.6 million.
While the two Bitcoin futures ETFs marked an important milestone for the crypto industry, the market clearly has higher hopes for the long-term bullish impact of Bitcoin spot ETFs on Bitcoin prices.
However, the U.S. Securities and Exchange Commission (SEC) clearly is not "fond of" Bitcoin spot ETFs, because the futures market is a "regulated" domain, whereas Bitcoin spot trading and exchanges fall outside the scope of regulatory oversight — the futures market is regulated by the U.S. Commodity Futures Trading Commission (CFTC), while the spot market is unregulated. SEC Chairman Gary Gensler previously stated that he is unwilling to approve securities outside of "regulated" domains. Compared to spot Bitcoin ETFs, he prefers Bitcoin futures ETFs.
As a result, Van Eck's spot Bitcoin ETF application was unsurprisingly rejected by the SEC.
On November 13, the SEC formally rejected Van Eck's spot Bitcoin ETF application. Van Eck had previously delayed the final decision date for this application from November 14. In a 51-page letter, the SEC wrote: "The Commission concludes that (the fund) has not fulfilled its obligations under the Securities Trading Act and the Commission's business rules to demonstrate that its proposal complies with... the rules of national securities exchanges 'designed to prevent fraudulent and manipulative acts and practices' and 'to protect investors and the public interest.'"
Regarding the reasons for rejection, the SEC's response to Van Eck titled "SECURITIES AND EXCHANGE COMMISSION" listed seven points. The SEC believes Bitcoin suffers from: 1) wash Trading; 2) influential individuals being able to manipulate the Bitcoin spot market; 3) the Bitcoin network and trading platforms being vulnerable to hacker attacks; 4) the Bitcoin network being subject to malicious control; 5) trading based on material non-public information, including spreading false and misleading information; 6) alleged manipulation involving the stablecoin USDT; 7) fraud and manipulation on Bitcoin trading platforms.
Does Bitcoin really have these seven "problems"? Michael Sonnenshein's perspective may help answer this question.
On November 10, Michael Sonnenshein, CEO of digital assets management company Grayscale, stated that the question of whether U.S. regulators will approve a Bitcoin spot exchange-traded fund (Bitcoin spot ETF) has transcended the "investment community," attracting politicians and has "become a political issue."
Sonnenshein noted that in early November, we saw Representatives Tom Emmer and Darren Soto express support for Bitcoin spot ETFs. Sonnenshein cited their arguments and pointed out that the SEC is essentially just concerned about potential Bitcoin market risks. According to Sonnenshein, the digital assets industry and now politicians are arguing that "if you're comfortable with derivatives, and these futures contracts are priced from the spot market itself, then you are essentially comfortable with the spot market."
In simple terms: since Bitcoin futures ETFs were approved, spot ETFs should certainly be approved too. The reason they weren't approved involves deeper political maneuvering.
Next, let's look at the so-called "Mt. Gox" panic.
On October 20, Wiz Sec Bitcoin Research tweeted that thanks to every Mt. Gox creditor who participated in the vote, the repayment plan has been approved. If the repayment plan is formally implemented, the Mt. Gox exchange will unlock 140,000 Bitcoin for creditors, worth over $8 billion, which on the surface would indeed have a tremendous impact on the crypto market.
However, the real situation is not that simple.
On November 17, Mt. Gox creditor Mindao Yang tweeted that creditors may not receive their BTC until 2023 at the earliest, and many claims have already been acquired by hedge funds, so the long-term impact may not be significant.
Additionally, Mindao Yang stated, "As a creditor, I wasn't even aware of the Mt. Gox unlock news..."
It appears, then, that the SEC's rejection of the Bitcoin spot ETF was a substantive bearish factor, while the so-called Mt. Gox panic was merely a "mistake" stemming from a misunderstanding of regulations.
Two secondary factors contributing to this market correction are also worth noting.
2**, Secondary Reasons: Digital Assets Capital Gains Tax and High Open Interest in Leveraged Contracts**
The secondary reasons are digital assets capital gains tax and record-high open interest in leveraged contracts.
Let's first look at digital assets capital gains tax.
What is capital gains tax? Simply put, it's the tax levied on profits earned from buying assets at a low price and selling them at a higher price. In the United States, this tax category applies to stocks, bonds, and real estate.
On September 13 this year, Democrats in the U.S. House of Representatives proposed tax increases to support Biden's $3.5 trillion economic plan, covering digital assets and industries such as tobacco. Digital assets would follow the same tax payment rules as other financial instruments, and would be subject to wash sale and constructive sale regulations, expected to raise approximately $16 billion.
According to a document released by the U.S. House Committee on Ways and Means on September 13, the proposal would raise the long-term capital gains tax rate for "certain high-income individuals" from the current 20% to 25%. A 3.8% additional tax on net investment income appears to apply to the proposed changes, which would bring the capital gains and dividend tax rates for wealthy U.S. crypto users to 28.8%.
Additionally, the tax plan would add digital assets to the "wash sale" rules. The "wash sale" rule prohibits investors from claiming capital gains deductions when repurchasing certain assets within 30 days of selling them. The IRS's current tax code treats digital assets as property in wash sales — some digital assets users can use these assets to avoid capital gains tax — and the U.S. legislators' proposal would close this loophole. If passed and signed into law, the plan would require crypto users to file taxes under the new wash sale rules starting December 31, while capital gains tax rates would apply to trades after September 13.
Currently, the U.S. House of Representatives has passed the infrastructure bill containing crypto tax provisions and has sent it to President Biden for signing.
Once passed, it would mean early crypto investors would have to pay capital gains and dividend taxes of up to 28.8%, and the "wash sale" rules would greatly dampen investor trading enthusiasm. This is also one of the reasons for the sluggish trading volume and price correction in the crypto market.
Next, let's look at the high open interest in leveraged contracts.
OKX OKX contract open interest has been steadily rising since hitting a low of $1.2 billion in October, peaking at $2.6 billion. Although it has pulled back recently, open interest remains as high as $2 billion, indicating prevalent market leverage. Extended periods of excessively high contract open interest are often accompanied by corrections.
Additionally, the OKX OKX long/short ratio has recently continued to climb, reaching a high of 1.85. A long/short ratio of 1.85 means that for every 1 person shorting the market, there are 1.85 people going long. Reviewing the historical trend of this indicator, it was at high levels during key moments such as 3/12 and 5/19.
In summary, under the combined influence of the Bitcoin spot ETF rejections and "Mt. Gox" panic as the dominant factors, and the digital assets capital gains tax and high open interest in leveraged contracts as contributing factors, the crypto market has entered a deep correction. As for whether the current crypto market correction has reached the bottom, readers will likely form their own judgments after deeply analyzing these factors.
Disclaimer
This article may contain product-related content not applicable to your region. This article is only intended to provide general information and makes no responsibility for any factual errors or omissions. This article represents only the author's personal views and does not constitute the views of OKX. This article is not intended to provide any advice, including but not limited to: (i) investment advice or investment recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. Holdings of digital assets (including stablecoins) involve high risk, may fluctuate significantly, or may even become worthless. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. For questions specific to your circumstances, please consult your legal/tax/investment professional. The information contained in this article (including market data and statistics, if any) is for general reference only. Although we have taken all reasonable precautions in preparing this data and these charts, we assume no responsibility for any factual errors or omissions expressed herein. © 2025 OKX. This article may be reproduced or distributed in its entirety, or excerpts of 100 words or less may be used, provided that such use is non-commercial in nature. Any reproduction or distribution of the entire article must prominently state: "This article is copyrighted © 2025 OKX, used with permission." Permitted excerpts must cite the article title and include attribution, for example, "Article Title, [Author Name (if applicable)], © 2025 OKX". Some content may be generated or assisted by artificial intelligence (AI) tools. Derivative works and other uses of this article are not permitted.
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