In a surprising turn of events, Bitcoin, the leading cryptocurrency, witnessed a substantial decline in January, even after the much-anticipated approval of Bitcoin Spot ETFs in the United States. This decline, marking Bitcoin’s longest losing streak since mid-December, comes as a stark contrast to the high expectations held by the crypto industry following the SEC’s favorable decision on ETFs.
Initially hailed as a simpler avenue for everyday investors to enter the Bitcoin market, the launch of new US spot exchange-traded funds for the cryptocurrency has failed to maintain the initial excitement, resulting in a notable downturn. Over the course of three consecutive days this week, Bitcoin experienced a decline, extending its losing streak. Smaller cryptocurrencies, including Ethereum and Solana, also witnessed a dip in value.
Bitcoin, known for its resilience, faced increased market volatility in recent weeks, impacted by rising interest rates and a strengthening dollar in the broader macroeconomic landscape. The decline began approximately two weeks ago when the US Securities and Exchange Commission gave the green light to eleven spot BTC ETFs. On the day of their debut on US exchanges, Bitcoin surged past $49,000 for the first time since 2022, only to experience a sudden reversal, trading around and below the critical $43,000 support level.
The subsequent week saw Bitcoin engaging in sideways trading, a period during which the flagship crypto asset seemed to lose the bullish momentum it had initially gained. Currently trading at around $39,000, its lowest level this month and $10,000 below its January high, Bitcoin’s recent performance has led to the liquidation of 126,807 assets in the past 24 hours, amounting to $332.83 million. The largest single liquidation, valued at $5 million, occurred on Bybit.
Investors have responded to the market conditions by selling over $2 billion worth of the Grayscale Bitcoin Trust (GBTC) since its conversion into an exchange-traded fund earlier this month. Furthermore, the unwinding of bullish perpetual futures has resulted in negative basis and sub-zero funding rates, indicating a prevailing seller dominance.
While there were high hopes that ETFs would stimulate widespread adoption of Bitcoin among institutional and retail investors, the cryptocurrency has faced a decline since the beginning of the year, lagging behind traditional financial markets. Traditional financial firms with exposure to Bitcoin ETFs have responded by cutting fees to attract inflows, with Invesco and WisdomTree reducing fees by over 60% on European Bitcoin products.
The recent approval of spot Bitcoin ETFs by the US Securities and Exchange Commission, featuring offerings from BlackRock, Fidelity, and Invesco, has flooded the market with a “phenomenal supply of new products” for US investors. As multiple providers lower fees, global investment banks are adjusting to find a new equilibrium between supply and demand, anticipating a significant reduction in fees compared to existing tracking products in other markets, such as Europe. The crypto market now faces questions about its resilience and the implications of the recent downturn on investor sentiment.
Credit: NairaMetrics
