Despite ETF Approval, Why is the Price of Bitcoin Declining?
Following the introduction of Bitcoin ETFs, the cryptocurrency market experienced a decline from $1.82 trillion to $1.66 trillion. However, while Bitcoin’s dominance dropped below 50%, Ethereum and other coins saw an increase in value. Bitcoin remained stable at around $42,500, with traders showing interest in purchasing below $40,000.
Experts believe that the initial impact of Bitcoin ETF approval has mostly subsided, and they anticipate a more stable market going forward. Despite the approval, the value of Bitcoin unexpectedly decreased by 17.7% in the past week, dropping from nearly $49,000 on January 11 to $40,500. This occurred despite the entrance of major players like BlackRock.
To understand this sudden downturn, market intelligence firm IntoTheBlock analyzed on-chain data. They discovered continuous inflows of Bitcoin into centralized exchanges (CEXs) over a period of six weeks, totaling almost $2 billion in net deposits. Typically, sustained deposits into exchanges indicate sell-offs, raising questions about the entities responsible for the selling pressure.
One important insight gained from the analysis was the record-high average holding time for transacted Bitcoin, suggesting that long-held BTC tokens were being circulated. This is believed to be linked to individuals leaving the Grayscale Bitcoin Trust (GBTC).
The analysis also revealed trends in Bitcoin addresses. Those holding over 1,000 BTC increased their wallets, while those with fewer than 1,000 BTC reduced their holdings in January. Addresses holding Bitcoin for 1-12 months decreased their balances. Overall, long-term holders slightly decreased their Bitcoin holdings, while short-term holders increased their positions since October 2023.
Despite concerns about the shift from long-term to short-term holders, IntoTheBlock argued that this situation differs from previous market tops. Factors such as lower volume compared to previous bull markets and a limited decrease in long-term holders’ balances led the platform to suggest that Bitcoin may be experiencing a temporary setback rather than entering a bearish trend. They anticipate the asset returning to a bullish territory.
Another factor contributing to Bitcoin’s current situation is the short-term impact of the spot Bitcoin ETF, which appears to be fading according to futures and options data. Traders find the funding rate appealing, indicating an imminent start of buying activities. In the last four hours, both BTC futures and options open interests (OI) have been on the rise.
The total BTC futures open interest, covering various exchanges like CME, Binance, and Coinbase, is experiencing a 0.35% increase, reaching $18.31 billion. This suggests a potential recovery in market interest and activity.
Michael van de Poppe, a top analyst, advises against a negative outlook on Bitcoin’s falling price. Instead, he suggests buying when prices drop and holding onto it for the long term.
Tags: Bitcoin, Bitcoin ETF, Price Analysis