Bitcoin (COIN: $BTC) price plunged below $40,000 on Tuesday, January 23, 2024, dragging down spot Bitcoin ETFs that track the cryptocurrency. The recent approval of spot Bitcoin ETFs, which directly hold the digital asset rather than Bitcoin futures, initially boosted the BTC price, but the hype now appears to be fading.
The slump defied forecasts that predicted Bitcoin’s price would surge as institutional investors poured money into the new spot ETFs. After years of anticipation, major Wall Street firms like BlackRock and ARK Invest rushed to launch spot Bitcoin ETFs earlier this month. But the excitement quickly fizzled despite the strong first days of trading.
BlackRock’s iShares Bitcoin Trust (IBIT), listed on the tech-heavy NASDAQ exchange, has sunk 14% after debuting to fanfare in early January. Competitors like ARK 21Shares Bitcoin (ARKB) and Boston-based WisdomTree Bitcoin (BTCW) have also tumbled 13-14% from initial offer prices.
Additionally, trading activity in these ETFs has plummeted. Their shrinking volumes reflect fading interest among investors who hoped the long-awaited spot ETFs would send BTC price soaring.
Bitcoin Plunges Below Key Levels
Along with the spot ETFs, Bitcoin plunged through several key support levels on Tuesday. The largest cryptocurrency by market cap sank nearly 5% to $38,700 during European trading hours.
This marks Bitcoin’s lowest point in over seven weeks, wiping out all its gains over the past two months. In that period, its price rallied from around $30,000 to a near two-year high above $49,000 earlier in January.
SEC Chair Gary Gensler has reiterated warnings that cryptocurrencies remain highly volatile, risky investments. The recent crypto market collapse has severely damaged investor trust.
Major players like Coinbase and Binance are still reeling from the catastrophic failure of major companies like FTX and criminal charges filed against them. As crypto winter drags on, BTC cannot decouple from plunging ETF values.
Dollar Strength Weighs Down Bitcoin
Bitcoin’s price often moves inversely to the U.S. dollar, since the two assets compete for investor attention. Traders are now betting on the Fed leaving interest rates high for longer to combat the still-high inflation.
Forecasts that the Fed would start cutting rates as early as March 2024 have been sharply scaled back this week. That’s helping push the dollar higher while sinking Bitcoin, despite the coinciding stock market rally lifting the S&P 500 and Dow Jones to new record highs.
As a non-yielding asset, Bitcoin tends to underperform when rates rise since it offers no investment income. ETFs linked to their price are subjected to the same market forces.
FTX’s $900 Million GBTC Sell-Off
Based on recent analysis, the failed crypto exchange FTX is partly responsible for the ongoing exodus from Grayscale’s Bitcoin Trust (GBTC).
Grayscale, which converted its Bitcoin fund to an ETF earlier this month, has bled over $2 billion of outflows since launching, according to data from CoinDesk. Sources revealed that FTX sold 22 million GBTC shares worth around $900 million to exit its position.
The selling pressure accelerated even after the SEC approved GBTC’s conversion from a closed-end fund on January 11. Rival ETFs had been slashing fees ahead of the long-anticipated approvals, charging as low as 0.2%.
FTX capitalized the price disparity between Grayscale trust shares and the asset value of the underlying BTC in the fund. In theory, the selling pressure should ease with FTX having sold off its GBTC holdings.
Should You Add BTC To Your Portfolio?
Bitcoin has plunged below $40,000, defying forecasts that spot Bitcoin ETF approvals would boost prices. Major ETFs like BlackRock’s IBIT and ARK’s ARKB have sunk 13-14% since launching earlier this month. Meanwhile, Bitcoin dropped nearly 5% on Tuesday to $38,700, wiping out the past two months of gains that saw it rally to almost $49,000. Ongoing selling pressure and a strengthening dollar continue weighing on Bitcoin and related ETFs.
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