- January 16, 2024
- Posted by: [email protected]
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Bitcoin experienced its most significant downward trend in approximately a month following the approval of spot Bitcoin (BTC) exchange-traded funds (ETFs) by the US Securities and Exchange Commission (SEC). Despite initial enthusiasm, the leading cryptocurrency has exhibited high volatility in recent days, ultimately settling at $42,655, showing minimal change.
This recent downturn marks Bitcoin’s longest losing streak since mid-December, leaving investors uncertain about the digital currency’s immediate trajectory. The catalyst for this turbulence was the introduction of nearly a dozen US ETFs focused on cryptocurrencies, with offerings from major investment entities like BlackRock Inc. and Fidelity Investments. These ETFs commenced trading on January 11th, propelling Bitcoin to a two-year high above $49,000 initially. However, the excitement swiftly dissipated, leading to a retracement.
Market analysts attribute this price action to a classic “buy-the-rumor, sell-the-fact reaction.” Chart patterns analyzed by Tony Sycamore, a market analyst at IG Australia Pty, suggest a potential decline to the $38,000 to $40,000 range for Bitcoin. The patterns indicate that the anticipation surrounding the ETFs had been largely factored into the market, prompting profit-taking by some investors.
Supporters argue that these US spot ETFs signify a substantial milestone for Bitcoin, offering increased accessibility for both institutional and retail investors. Conversely, skeptics point to the turbulent year cryptocurrencies, especially Bitcoin, had in 2022, marked by a significant crash and subsequent bankruptcies. Despite a partial market rebound, concerns about broader adoption persist.
Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, claimed that the newly introduced US spot funds attracted a net inflow of $819 million in the initial two trading days. This included significant investments in BlackRock’s iShares Bitcoin Trust and the Fidelity Wise Origin Bitcoin Fund. However, the largest Bitcoin fund, the $26 billion Grayscale Bitcoin Trust, experienced $579 million in outflows after converting into an ETF the previous week.
The shift in investor sentiment was partially due to the fund’s transition from a closed-ended structure to an ETF, narrowing the discount to its underlying holdings. Analyst Noelle Acheson suggested that Bitcoin’s recent weakness may be attributed to speculators taking profits as the discount between the Grayscale Bitcoin Trust and its holdings nearly vanished.
While not all outflows from the Grayscale Bitcoin Trust were likely reinvested directly into Bitcoin, the new ETFs are expected to continue witnessing robust inflows as more sidelined capital enters the market. In the coming weeks, these ETFs are likely to garner increased attention and inflows as their marketing campaigns gain momentum. However, caution is advised, as short-term outflows may occur during the unwinding of speculative positions. According to Andrew Peel, head of digital asset markets at Morgan Stanley, the approval of spot Bitcoin ETFs could signify a “potential paradigm shift in the global perception and use of digital assets.”
