The price of the world’s leading cryptocurrency, Bitcoin, has taken a nosedive, plunging 11% in a weekly chart that now hovers dangerously close to the $40,000 zone. This stark reversal erases all the gains made during the promising early weeks of 2024. The slump comes in the wake of the much-anticipated approval of Bitcoin spot ETFs by US securities regulators just a week ago.
Bitcoin Spot ETF Approval Fails to Boost Prices
Since the commencement of spot Bitcoin ETF trading on January 11, the digital currency has experienced a significant setback, plummeting 6.6% from its lofty heights of nearly $49,000 to the current value of $40,993.46 at the time of reporting. This unexpected turn of events is raising questions among crypto enthusiasts, particularly those who had heralded spot ETFs as a watershed moment for the crypto market.
One plausible explanation for this downturn revolves around the Grayscale Bitcoin Trust (GBTC), a publicly listed Bitcoin warehouse that played a pivotal role in advocating for the legalization of US spot ETFs. GBTC, which had been operating as a Bitcoin lobster pot since 2017, converted to an ETF last week, allowing backers their first chance to reclaim the approximately $28 billion worth of BTC it had accumulated.
However, in the four days following spot ETF approval, GBTC has witnessed redemptions exceeding $1.6 billion. Analysts suggest that this might be a result of investors cashing out rather than reallocating their assets to cheaper ETFs. The situation is further complicated by the fact that GBTC investors, who had previously bought the fund at a significant discount to NAV in anticipation of its eventual ETF conversion, are now taking full profits by exiting the BTC space altogether.
Industry experts, including JPMorgan analyst Nikolaos Panigirtzoglou, predict that an overhang from these previously trapped GBTC punters could persist, potentially putting further pressure on BTC prices in the coming weeks. The outflows from GBTC have also prompted discussions about lowering fees to remain competitive with other spot ETFs.
BITO’s Impact: Futures-Based ETFs Add to the Woes
Additionally, BTC’s decline is not limited to the US market. Canadian and European exchange-traded products (ETPs) have witnessed substantial outflows in the past week as investors opt for cheaper US ETFs. The ProShares Bitcoin Strategy ETF (BITO), a futures-based fund with over $2 billion in assets under management, is also making waves. Although it holds no actual Bitcoin, it accounts for a staggering 36% of Bitcoin contract open interest at the CME Group’s exchange. As BITO and other futures-based funds experience outflows, they may be forced to close long positions in the futures market, adding further downward pressure on Bitcoin prices.