2024 is of great significance to Bitcoin. In addition to the upcoming halving event, the Bitcoin spot ETF approved on January 11 will undoubtedly open up a new path for Bitcoin trading. Affected by this news, the price of BTC surged to a multi-year high, reaching $49,102. However, the good times did not last long, and crypto assets soon began to continue to decline, and hit $39,431 today (23rd), a new low this year.
So, what exactly caused Bitcoin’s decline? Does the drop in BTC prices mean the news for ETFs isn’t as good as people expected? This article will analyze them one by one.
Bitcoin (BTC) price drops below $40,000.
The U.S. Securities and Exchange Commission (SEC) approved 11 Bitcoin spot ETFs on January 11, triggering heated discussions in the market. Some cryptocurrency enthusiasts predict that this year could see a bull market similar to 2021.
However, despite more than $2 billion flowing into Bitcoin ETFs in the days following the SEC’s approval, BTC prices have not continued to rise. Instead, it soon began to slide, falling from its all-time high of $49,102 to its current levels.
Since then, BTC prices have fallen below the $40,000 mark, hitting as low as $38,545
The main reasons for the price decline of Bitcoin (BTC) are as follows:
Macroeconomic Volatility: Trading volume across the cryptocurrency market is affected by macroeconomic factors. For example, a stronger U.S. dollar has put selling pressure on Bitcoin. The U.S. Dollar Index reversed from the 101 level in early January to 103.50 on January 18, likely driven by increased demand and rising U.S. Treasury yields. In addition, high expectations for U.S. retail sales growth and a sharp rise in U.S. Treasury yields also show that the market is adjusting its bets on the Fed's interest rate cut path. This adds to the strength of the U.S. dollar, which in turn puts pressure on cryptocurrency prices.
GBTC activity: Grayscale Bitcoin Trust (GBTC) moved 8,730 BTC to Coinbase Prime deposit addresses on January 16, which may mean that GBTC holders are choosing to close some of their positions. This transfer may have some impact on the BTC price.
"Selling news" events: During earnings season, if a stock performs strongly and beats expectations, the stock price may still lose value. This phenomenon is known as "news selling," in which shareholders take profits after good news breaks. This behavior also exists in the cryptocurrency market. When the pool of sellers outnumbers the pool of potential investors, heavy selling can lead to an imbalance between supply and demand, causing prices to fall. In addition, derivatives leverage and spot profit-taking may also be factors driving the price decline.
Does Bitcoin’s Fall Show ETFs Are Not All That Good?
Bitcoin's decline doesn't mean ETFs aren't that good. Experts still expect that Bitcoin spot funds will open the market to a flood of new investors and push prices back to all-time highs. They view these losses as a minor setback in a bullish picture. If anything, potential Bitcoin investors may take the opportunity to buy Bitcoin at a “discounted” price.
The approval of a Bitcoin ETF provides investors with new trading channels, which could help drive more capital into the cryptocurrency market. Although the price of Bitcoin has fallen recently, this does not mean that the influence of ETFs has weakened. On the contrary, as the market matures and more investors become more aware of Bitcoin, ETFs are expected to continue to play an important role in the future.
In addition, the decline in Bitcoin price may be affected by a variety of factors, including market sentiment, macroeconomic conditions, technical indicators, and news events. Bitcoin’s decline cannot simply be blamed on ETF approval.
Therefore, we cannot simply correlate the decline of Bitcoin with the performance of ETFs. Investors need to comprehensively consider various factors and make prudent decisions to achieve better investment returns.
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