The expectation that US regulators will legalize bitcoin exchange-traded funds, expanding the pool of possible investors, sent major cryptocurrencies into a frenzy toward the close of the previous year.
Bitcoin dropped as soon as those funds were approved. Why is that happening?
Early this month, investors expected the US Securities and Exchange Commission to approve the first-ever exchange-traded funds that tracked the spot price of bitcoin, which caused the cryptocurrency to surpass $47,000 for the first time since April 2022.
However, following the appropriate January 10 positive SEC ruling, the value of cryptocurrencies fell. And earlier this week, bitcoin saw its price dip below $40,000 for the first time since December.
By 4 p.m. ET on Wednesday, the cryptocurrency’s price was almost $39,519 per coin.
Thus, even though investors received their desired outcome, why is the price of bitcoin declining? According to Antoni Trenchev, co-founder of cryptocurrency lender Nexo, part of the cause is probably a “buy the rumor, sell the news” approach. That is the notion that, after the news is officially released, investors take profits, and the price of the asset often drops in anticipation of an announcement.
It’s interesting to note that net buying is visible in bitcoin ETF activity.
Since the Grayscale Bitcoin Trust was changed to an ETF on January 11, investors have taken out almost $4.4 billion from it, according to Coinshares data as of this Wednesday. The largest bitcoin ETF, with almost $20 billion in assets, is Greyscale’s fund.
However, the inflows of roughly $5.3 billion into nine other spot bitcoin ETFs have offset those flows.
The amount of bitcoin that is traded that is held by ETFs is quite little, according to Eric Balchunas, senior ETF analyst. This indicates that the call is coming from the home. The seller is someone who previously had the cryptocurrency, he claimed.
Since falling to less than $17,000 in late 2022 due to the bankruptcy filing of cryptocurrency exchange FTX, which sparked a frenzy in the cryptocurrency trading community, Bitcoin has steadily increased in value over the past year. Even yet, it is still far behind the all-time high of around $69,000 that was attained in November 2021.
This level of volatility in the industry is nothing new to us. In a note on Tuesday, Craig Erlam, senior market analyst at OANDA, stated that what concerns right now is what could happen next that could increase interest in cryptocurrencies and result in additional gains.
