Bitcoin drops over 20% since launch of US spot ETFs

Bitcoin has fallen over 20 per cent since the January 11 launch of the first exchange-traded funds investing directly in the token as speculators become more cautious about the potential impact of the products, according to a Bloomberg report.

The digital asset rose to $49,021 on the day the ETFs from issuers including BlackRock Inc. and Fidelity Investments went live. Bitcoin traded at $38,860on Tuesday in New York, a 20.7 per cent drop from that intraday peak.

“As bearish sentiment appears to be prevailing, the next crucial price levels for bitcoin that could provide support are estimated to be between $38,000 and $36,000,” analysts at crypto exchange Bitfinex wrote in a Tuesday note.

Nine new US spot Bitcoin funds started trading on January 11, while the $22 billion Grayscale Bitcoin Trust — or GBTC — converted from a closed-ended structure into an ETF. A net $1.2 billion flowed into the group in the first six days, Bloomberg Intelligence’s Senior ETF Analyst Eric Balchunas wrote on X.

BlackRock’s iShares Bitcoin Trust and the Fidelity Wise Origin Bitcoin Fund garnered most of the influx, while $2.8 billion exited the Grayscale fund, Balchunas said. Among the sellers was the estate of bankrupt crypto exchange FTX, which disposed of the majority of its shares in the Grayscale vehicle.

“Over the past two weeks, Bitcoin has been challenged by tougher macro conditions — evidenced by rallying rates and a strengthening dollar — and significant selling pressure from traders unwinding their GBTC arbitrage positions along with the FTX bankruptcy estate offloading assets,” Sean Farrell, head of digital-asset strategy at Fundstrat Global Advisors LLC, wrote in a note.

The disposals by FTX potentially remove a supply overhang, suggesting that the intense selling pressure from GBTC may soon subside, the analyst added.

The world’s largest cryptocurrency surged almost 160 per cent last year, outperforming traditional assets such as stocks, amid speculation that the ETFs would catalyze wider adoption of the cryptocurrency by institutional and individual investors, according to the report.

The token has been retreating since the turn of the year and trailing global markets. Tokens such as Ether and BNB also fell sharply along with Bitcoin, the largest digital asset, which is roughly $30,000 below its 2021 pandemic-era record of almost $69,000.

“GBTC outflows have created a dynamic in the market that needs to be normalized before we will see true price discovery,” said Leah Wald, chief executive officer of digital-asset investment firm Valkyrie Investments, according to Bloomberg.


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Published: 23 Jan 2024, 06:05 PM IST

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