How Will the Bitcoin Market Continue After ETFs Plummet by 15% After Landing?

[TL；DR]:

After the approval of the US spot Bitcoin ETF on January 10th, the coin price briefly surged and the maximum drop exceeded 15%, with a total of $342 million in liquidated funds.

The market speculates that this round of decline is due to short-term speculative funds withdrawing from “selling news” for profit, as well as overbought technology.

Analogous to the price response of gold and silver ETFs after approval, the decline of Bitcoin is still normal and will usher in a process of value discovery in the long term.

Introduction

Recently, the US Securities and Exchange Commission finally approved 11 Bitcoin ETFs on January 10th. However, within a few hours after the positive news was announced, Bitcoin prices slightly climbed to $49,000 and instead fell back to around $41,000. Selling news is referred to as bearish evidence for observers.

However, people’s opinions on the upcoming Bitcoin halving event in April are different, and this article will provide an in-depth interpretation of this.

Bitcoin’s Significant Drop in Price, Driving Market Correction

The approval of the spot Bitcoin ETF has been described by the media as a historic milestone, but the crypto market’s response to this has been lackluster, even starting to decline two days later. This makes many people wonder whether the approval of Bitcoin ETFs is positive or negative?

According to Gate.io’s market data, after the spot Bitcoin ETF was approved, the price slightly surged to a maximum of $49,000, and then continued to decline, reaching a minimum of $41,422, a drop of over 15%. As of the date of writing, the coin price is still in a narrow range of fluctuations after a downturn, with a temporary price of $42,722.

Source: Gate.io

According to CoinGlass’s data, as of the day after the sharp drop in crypto prices, over 100.000 investors in the crypto market had experienced a sell-off within 24 hours, with a total amount of $342 million.

The decline of Bitcoin has not only driven a downturn in the entire crypto market, but also triggered adjustments in related concept stocks. In the US stock market, crypto concept stocks experienced a general decline during the same period, with Marathon Digital falling more than 15%, Riot Platforms falling more than 10%, MicroStrategy falling more than 9%, Canaan Creative falling nearly 9%, and Coinbase falling more than 7%.

The Interest Rate Cut is still Unclear, and the Positive News has Turned into a Decline

Although the approval of ETFs is long-term positive news compared to Bitcoin, after the news settled, the market fell into a short-term bearish game of liquidity tension and capital outflows.

In terms of economic data, the Producer Price Index (PPI) of the United States in December 2023 increased by 1% year-on-year, lower than the expected 1.3%, with a previous value of 0.9%; A month on month unexpected decrease of 0.1%, with no growth for three consecutive months. In addition, the core PPI increased by 1.8% year-on-year, with an expected 1.9% and a previous value of 2%.

On the day before the release of PPI data, the US Department of Labor released data showing that the Consumer Price Index (CPI) for December 2023 increased by 0.3% month on month and 3.4% year-on-year, both higher than Wall Street’s expectations and significantly higher than the Federal Reserve’s 2% inflation target.

This has added some difficulty to the Federal Reserve’s expectation of interest rate cuts this year, and the longer the tightening liquidity policy lasts, the more unfavorable it will be for the crypto market.
In addition, from the perspective of cash Flow data, in addition to short-term speculative funds directly selling Bitcoin to cash out, the liquidation pressure of Grayscale ETFs and FTX bankruptcies is also an important driver of this round of decline.

Source: Bloomberg

According to data, on the first day of the issuance of spot Bitcoin ETFs, Grayscale GBTC spot Bitcoin ETFs accounted for nearly half of the trading volume, with a capital outflow of $579 million in the two days of listing.

The Market is Expected to Fluctuate and Adjust in the Future, Halving Speculation is Approaching

Presently, many interpretations of this round of decline are attributed to “Buy the Rumor, Sell the News” which does make some sense.
If we compare the current status of Bitcoin ETFs with the approval process of past gold and silver ETFs, perhaps we can gain some insights.

Historical data shows that when the gold ETF GLD was approved in November 2014, gold prices did not reach a new peak as a result. But in the next 8 years, the price of gold more than doubled, rising from the initial $400 to $1,800, and the market value increased from about $2 trillion to about $10 trillion, an increase of about $8 trillion.

According to analysts at McOscillator, the moment GLD went public for the first time did not mark a definite top for gold prices, but two weeks later, gold prices did indeed form an important top and did not break through for the next 10 months.

Source: mcoscillator.com

A similar situation also occurred in April 2006 when the Silver ETF SLV was first listed. The day SLV was approved did not mark the exact top, but it was considered part of the top structure and remained at a high level for the following months.

Source: mcoscillator.com

These historical data provide valuable references for comparing the current situation of Bitcoin ETFs. Although the approval of Bitcoin ETF may not immediately lead to a new peak in prices, it may become part of the market structure and may have a significant impact on prices in the coming months.

In fact, after the US SEC approved the Bitcoin ETF, investors were able to participate in the financial performance of the largest, most popular, and leading digital assets in a familiar and easy-to-use form, similar to trading traditional stocks. This structure greatly reduces the technical burden of managing crypto wallets, protecting private keys, and familiarizing oneself with crypto exchanges.

The Bitcoin ETF has cleared the barriers to entry for those who are interested in the Bitcoin market but fear the complexity of handling cryptocurrencies. It not only provides a more simplified and streamlined investment channel, but also preserves the dynamism of the Bitcoin market and potential lucrative profits.

In the author’s opinion, the approval of Bitcoin ETFs is not only a favorable landing, but also lays a relatively solid foundation for preparing for this year’s halving market.

It can be certain that ETFs will bring many changes and impacts to the crypto market. Although there may still be some volatility after profit taking in the short term, which poses a certain test for short-term investors, for long-term investors, we will witness the rapid growth of crypto assets in 2024 and beyond.