Bitcoin experienced its most significant downturn in roughly a month following the approval of spot Bitcoin (BTC) ETFs by the US Securities and Exchange Commission.
The leading digital currency displayed remarkable volatility over the past few days and ultimately settled at $42,655 as of the present moment.
This recent decline marked Bitcoin’s lengthiest period of consecutive losses since mid-December, leaving investors uncertain about the cryptocurrency’s near-term trajectory.
The primary trigger for this recent turbulence was the introduction of nearly a dozen US exchange-traded funds (ETFs) dedicated to cryptocurrencies, including offerings from prominent investment firms such as BlackRock Inc. and Fidelity Investments.
These ETFs officially commenced trading on January 11th, initially propelling Bitcoin to a two-year high above $49,000 in response.
Nevertheless, the initial enthusiasm waned rapidly, causing the cryptocurrency to retrace its gains.
Buy the Rumor, Sell the Fact
Market analysts attribute the recent Bitcoin price movement to a classic “buy-the-rumor, sell-the-fact” reaction.
Tony Sycamore, a market analyst at IG Australia Pty, has pointed out that chart patterns indicate a potential decline to the $38,000 to $40,000 range for Bitcoin. This pattern suggests that the excitement surrounding the ETFs had largely already been factored into the market, prompting some investors to take profits.
Bitcoin supporters argue that these US spot ETFs represent a significant milestone for the cryptocurrency, granting increased accessibility to institutional and retail investors.
On the contrary, skeptics highlight the turbulent year cryptocurrencies, especially Bitcoin, endured in 2022, characterized by a substantial crash and subsequent bankruptcies. Despite a partial market recovery last year, concerns about broader adoption continue to linger.
New Spot Funds Receive Substantial Inflows
Eric Balchunas, the senior ETF analyst at Bloomberg Intelligence, reported that the newly launched US spot funds attracted a net inflow of $819 million during the initial two days of trading.
These investments included significant allocations to BlackRock’s iShares Bitcoin Trust and the Fidelity Wise Origin Bitcoin Fund.
However, the Grayscale Bitcoin Trust, with assets totaling $26 billion and being the largest Bitcoin fund, experienced outflows amounting to $579 million after transitioning into an ETF just the previous week. This shift in investor sentiment was partly driven by the fund’s change from a closed-ended structure to an ETF, which narrowed the discount to its underlying assets.
Noelle Acheson, the author of the Crypto Is Macro Now newsletter, proposed that the recent decline in Bitcoin’s value might be attributed to speculators capitalizing on profits as the discount between the Grayscale Bitcoin Trust and its underlying holdings nearly disappeared.
While it’s improbable that all the funds exiting the Grayscale Bitcoin Trust were directly reinvested in Bitcoin, the newly established ETFs are expected to continue witnessing substantial inflows as more sidelined capital enters the market.
In the upcoming weeks, these ETFs are likely to garner even more attention and attract additional investments as their marketing campaigns gain momentum.
Nevertheless, it is essential for the market to exercise caution, as short-term outflows may occur during the unwinding of speculative positions.
As Andrew Peel, the head of digital asset markets at investment banking giant Morgan Stanley, has pointed out, the approval of spot Bitcoin ETFs could represent a “potential paradigm shift in the global perception and utilization of digital assets.”
