Is Now a Good Time to Buy Bitcoin as Price Drops 20% Following ETF Hype?
Bitcoin has experienced a recent decline, losing almost 20% of its value since the launch of the first-ever exchange-traded funds (ETFs) on January 11.
On the day ETFs were introduced, Bitcoin initially surged to an impressive $49,021, with major players such as BlackRock Inc. and Fidelity Investments entering the crypto investment arena. However, the excitement was short-lived, and currently, Bitcoin is trading at $39,718—a significant 19% decline from its peak during the day.
Let’s delve into the details to understand the factors behind this market turbulence.
New Funds Enter the Scene
Alongside this market turbulence, nine new US spot Bitcoin funds emerged, and the massive $22 billion Grayscale Bitcoin Trust (GBTC) transformed into an ETF on January 11. Notably, within the first six days, these funds collectively attracted a net inflow of $1.2 billion, according to insights shared by Eric Balchunas, a Senior ETF Analyst at Bloomberg Intelligence.
The iShares Bitcoin Trust from BlackRock and the Fidelity Wise Origin Bitcoin Fund took center stage, capturing the majority of new investments. On the other hand, $2.8 billion exited the Grayscale fund, with significant selling activity coming from the estate of the bankrupt crypto exchange FTX, which strategically divested most of its shares in the Grayscale vehicle.
What Caused Bitcoin’s Decline?
Bloomberg analysts attribute Bitcoin’s recent troubles to weak financial conditions, including higher interest rates, a stronger dollar, and a significant amount of selling pressure. Traders closing out GBTC arbitrage bets and the FTX bankruptcy estate selling off assets have added to this pressure. Sean Farrell, Head of Digital-Asset Strategy at Fundstrat Global Advisors, speculates that FTX sales might alleviate oversupply, potentially reducing the intense selling pressure on GBTC.
Despite Bitcoin’s impressive 160% surge in the previous year, outpacing traditional assets, its performance has faltered in the new year, lagging behind global markets. However, the introduction of ETFs was expected to encourage broader cryptocurrency adoption by both institutional and individual investors.
Global Challenges
Interestingly, it’s not just Bitcoin facing challenges; other cryptocurrencies, including Ether and BNB, encountered difficulties in Asia on the same day. Bitcoin, as the largest digital asset, currently lingers approximately $30,000 below its pandemic-era record of nearly $69,000 set in 2021.
Future Outlook: Are Bulls Still Confident?
Looking ahead to 2024, despite the recent dip, Bitcoin’s outlook remains optimistic. The introduction of new spot Bitcoin ETFs and an upcoming halving are expected to create long-term demand and reduce selling pressure. Anticipated Federal Reserve interest rate cuts in 2024 suggest improving liquidity conditions, aligning with rising demand and falling supply—a promising combination for Bitcoin enthusiasts.
The crypto rollercoaster continues, and only time will reveal the twists and turns that lie ahead.