In a significant development in the cryptocurrency market, Bitcoin has witnessed a steep decline of more than 20% since the launch of the first US-based exchange-traded funds (ETFs) dedicated to the digital currency. The introduction of these ETFs has sparked caution among speculators, who are closely monitoring the potential implications of these financial instruments.
On January 11, Bitcoin experienced a surge, reaching an intraday peak of $49,021. This surge coincided with the launch of ETFs offered by major issuers, including BlackRock Inc. and Fidelity Investments. However, as of 8:38 a.m. on Tuesday in New York, Bitcoin was trading at $38,975, marking a substantial 20.5% drop from its peak.
Analysts at Bitfinex, a prominent cryptocurrency exchange, have identified crucial support levels for Bitcoin, estimating them to be in the range of $38,000 to $36,000, as bearish sentiment continues to influence the market. This decline comes as 10 Bitcoin ETFs have collectively recorded total net flows of $1.1 billion thus far in the month, according to data available on the Bloomberg Terminal as of Monday. Notably, this figure includes the impact of Grayscale’s Bitcoin Trust (GBTC), which has seen outflows of nearly $3.5 billion as investors divest their long-held stakes in the trust.
The past two weeks have presented Bitcoin with various challenges, including tougher macroeconomic conditions, such as rising interest rates and a strengthening US dollar. Furthermore, significant selling pressure has emerged as traders unwind their GBTC arbitrage positions, and assets from the FTX bankruptcy estate are sold off, as highlighted by Sean Farrell, the head of digital-asset strategy at Fundstrat Global Advisors LLC.
FTX’s asset disposals have raised expectations that this could alleviate supply pressure, potentially leading to a reduction in the intense selling pressure associated with GBTC, as Farrell added. Bitcoin’s remarkable surge of nearly 160% in the previous year, surpassing traditional assets like stocks, was largely driven by speculation that the introduction of ETFs would drive broader adoption of the cryptocurrency among institutional and individual investors. However, since the start of this year, Bitcoin has been on a downward trajectory, trailing behind global financial markets.
Alongside Bitcoin, other digital assets, such as Ether and Binance Coin (BNB), have also experienced sharp declines. Bitcoin, as the largest digital currency, currently trades at approximately $30,000 below its pandemic-era record high of nearly $69,000. The outflows from GBTC have introduced a dynamic into the Bitcoin market that analysts believe needs to be normalized before true price discovery can occur. Leah Wald, the CEO of digital-asset investment firm Valkyrie Investments, emphasized the importance of stabilizing the market’s current dynamics impacted by GBTC outflows.