The recent green light for 11 new Bitcoin (BTC) Exchange-Traded Funds (ETFs) didn’t quite send Bitcoin prices on a victory lap. Instead, it took a nosedive of over 5% in the last 24 hours and nearly 12% in the past month. So, despite briefly basking above $48,000 post-Securities and Exchange Commission (SEC) approval, BTC has dipped below the psychological $40,000 mark it wrestled with during the crypto winter of 2022-23.
Even Ethereum (ETH), the top alternative cryptocurrency, couldn’t dodge the downturn, facing an over 8% drop, pushing its price south of $2,200 – A level it wrestled with for more than a year and a half during the crypto winter that kicked off in April 2022.
This Bitcoin rollercoaster isn’t a solo ride; It’s dragging down other major players, too. BNB Coin (BNB) is down 5%, Solana (SOL) took an 8% hit, Ripple (XRP) is down 5%, and Cardano (ADA) is down 7%. The cryptosphere is feeling the ripple effect of Bitcoin price tango as well.
Overview of Why Bitcoin Price Is Down
The hype surrounding the SEC’s approval of 11 new Bitcoin ETFs in January turned out to be a classic case of “Buy the rumour; sell the news”. As anticipation of the approval grew, Bitcoin price soared. However, once the ETFs got the official nod, short-term traders seized the moment to pump up the price further and then cash in on their gains, following the investment adage.
Bitcoin ETFs, whether spot or futures-focused, only trade during market hours, unlike cryptocurrencies, which trade 24/7 across a decentralised network. The recent drop in Bitcoin’s price is linked to investors closing their positions in the Grayscale Bitcoin Trust (GBTC) due to higher fees than competitors.
Among the leading ETFs, the BlackRock (IBIT) and Fidelity (FBTC) funds have been frontrunners in absorbing demand. However, the Grayscale fund still holds the largest amount of coins by a considerable margin. The long-term impact of these ETFs remains uncertain, as such market fluctuations are common and part of the routine in the crypto space.
Quick Link: SEC Engages in Intense Discussions with Grayscale and BlackRock Regarding Bitcoin ETFs
Three Reasons Why Bitcoin Price Fell in January
Here are some details about why the Bitcoin price fell in the last few days after rallying over 160% during the year-end ETF news.
#1. Short-Term Bitcoin Traders Taking Profits
There are two camps in the Bitcoin investor realm. On one side, you’ve got the hodlers who are in it for the long haul, accumulating and holding onto their Bitcoin stash with an iron grip. They’re betting big on the ongoing global adoption of cryptocurrency, convinced that the potential upside is nothing short of astronomical. Selling? That’s a no-go for them.
Now, the other one is the price arbitrage day traders. These are the quick players in the game, seizing opportunities for profit in the short term. January saw them in action. Antoni Trenchev, the co-founder of crypto lender Nexo, describes the falling Bitcoin prices as a classic case of buying bags of Bitcoin amid the rumours and selling it once the price soared and reached the desired level after the news.
According to a report from Motley Fool, it’s like a script playing out: Short-term traders jacked up the digital currency’s price in anticipation of those shiny new ETF approvals. But as the excitement settled and reality kicked in, these traders wasted no time cashing out their gains, causing a dip in Bitcoin prices. It’s a tale as old as time in the ever-vibrant cryptocurrency trading world.
Also Read: Top 5 Crypto Trends and Innovations to Watch in 2024
#2. Market Was Overbought Due to ETF News
The cryptocurrency community was on top of the world when the D.C. Circuit Court of Appeals gave a thumbs-up to Grayscale last August. The crypto hedge fund had thrown down the gauntlet, claiming that the SEC’s rejection of its Bitcoin ETF proposal was nothing short of arbitrary and capricious.
The court didn’t take it lightly and ordered the SEC to get its act together and consider approving an ETF. The Bitcoin price caught fire in October. It was like a crypto rollercoaster, with weekly headlines buzzing about progress between over a dozen ETF hopefuls and the SEC.
Riding this wave of optimism, Bitcoin soared a whopping 80% in just over four months – Jumping from $25,811 on September 1 to a brisk $46,670 on January 10. Talk about a ride! The average annualised return on investment for that period would widen any investor’s eyes – Well over 200%. But, as J.P. Morgan foresaw, every hot streak needs a cooldown.
Quick Link: What Were the 5 Biggest Crypto Stories of 2023?
#3. Bitcoin Liquidations on the Rise
Significant movements in the Bitcoin futures market can be discerned by examining liquidations. The occurrence of long liquidations aligned with heightened volatility. In a single day on January 17, liquidations, both long and short positions, exceeded $27 million. The lion’s share, $19.5 million, represented liquidated Bitcoin long positions.
The impact of BTC long liquidations is noteworthy, especially when unaccompanied by buying pressure from traders, which negatively influences Bitcoin price. This trend coincided with a substantial drop in Bitcoin trading volumes, plummeting by over $12 billion from the peak of $21.2 billion in daily activity on January 10.
Interestingly, while exchange trading volumes dipped, spot Bitcoin ETFs saw remarkable success, recording three times the daily volume of all 500 institutional ETFs launched in 2023 combined on January 16. The volumes on January 16 alone surpassed $10 billion within three days.
Quick Link: Look Out for These 5 Key Cryptocurrency Trends in 2024
Is Cryptocurrency a Safe Investment?
The cryptocurrency market experienced a robust resurgence in 2023, with Bitcoin marking a 160% gain, signalling the end of the perceived crypto winter from 2022. The collapse of FTX in November 2022 led U.S. regulators to intensify scrutiny on crypto exchanges.
SEC Chair Gary Gensler asserted that most cryptocurrencies are securities, filing actions against major exchanges like Binance and Coinbase. However, Gensler clarified Bitcoin’s status as a commodity regulated by the CFTC. Despite a strong 2023, Bitcoin faced a nearly 9% decline in the first month of 2024, settling at $38,000, a 44% drop from its November 2021 peak. Visit here for the latest crypto market news.
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