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Bitcoin has suffered a recent downturn, losing nearly 20% of its value since the launch of the first exchange-traded funds (ETFs) directly investing in the cryptocurrency on January 11. The digital asset initially rose to $49,021 on the day of the ETF’s launch, including one from BlackRock Inc. and Fidelity Investments. However, it is trading at $39,718, down 19% from its intraday high. The 3% daily decline increased the size of BTC’s retracement to 18.5% from the January 10 high of $48,500. Moreover, analysts predicted that the correction could continue and be as deep as 30%, causing Bitcoin prices to fall back to $34,000. On January 23, network analytics platform CoinGlass published a liquidation heat map with a bright spot at $34,000. CoinGlass also reported that $225 million was liquidated in the last 24 hours. Most of them were long Bitcoin and Ethereum. However, since the launch of spot ETFs, 27,717 BTC have been purchased on a net basis by fund issuers, CC15Capital reported. This amounts to about $1.1 billion at current prices, despite the outflow of funds from GBTC.
As a reminder, 9 new Bitcoin spot funds were recently launched in the US, and the $22 billion Grayscale Bitcoin Trust (GBTC) converted to an ETF on January 11th. In the first six days, these funds collectively attracted net inflows of $1.2 billion. Notably, BlackRock’s iShares Bitcoin Trust and Fidelity’s Wise Origin Bitcoin Fund attracted most of the new investment, while $2.8 billion was withdrawn from Grayscale’s fund. The sale activity included a significant portion of the assets of bankrupt cryptocurrency exchange FTX, which sold most of its shares in Grayscale vehicle.
Bloomberg analysts report that Bitcoin’s recent problems are caused by weak financial conditions, such as higher interest rates, a stronger dollar and strong selling pressure. Traders are shutting down their GBTC arbitrage bets and FTX asset sell-off due to bankruptcy. Sean Farrell, head of digital asset strategy at Fundstrat Global Advisors, said the FTX sales could ease oversupply, which could mean less selling pressure on GBTC. While Bitcoin saw significant growth of 160% in the previous year, outperforming traditional assets, its performance has declined year-to-date, lagging global markets. Despite this setback, it was hoped that the introduction of ETFs would encourage greater adoption of cryptocurrencies by institutional and individual investors. Interestingly, the report highlights that other cryptocurrencies, including Ether and BNB, faced problems in Asia on the same day. Bitcoin, the largest digital asset, is currently about $30,000 below its pandemic-era record of nearly $69,000 set in 2021.
Altcoins were in a sea of red on Tuesday morning in Asia, with Solana (SOL), Avalanche (AVAX), Chainlink (LINK) and Litecoin (LTC) taking the biggest losses. The total market capitalization fell, at the time of writing, by 2.8% on the day to $1.65 trillion. Bitcoin has recovered slightly and is back at $40,000, but the short term promises more trouble. Despite the recent decline, Bitcoin’s prospects for 2024 remain quite uncertain. The new Bitcoin spot ETFs and the upcoming halving are intended to create long-term demand and reduce selling pressure. The Federal Reserve’s expected interest rate cut in 2024 suggests improving liquidity conditions in line with rising demand and falling supply — still likely a favorable combination for Bitcoin.
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