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Bitcoin has experienced a recent downturn, shedding nearly 20% of its value since the launch of the first exchange-traded funds (ETFs) directly investing in the cryptocurrency on January 11. The digital asset initially surged to $49,021 on the day the ETFs, including those from BlackRock Inc. and Fidelity Investments, went live. However, it trades at $39,718, a 19% decline from its intraday peak.
Newly launched 9 new US spot Bitcoin funds, and the $22 billion Grayscale Bitcoin Trust (GBTC) transformed into an ETF on Jan 11. In the first six days, these funds collectively attracted a net inflow of $1.2 billion, a Senior ETF Analyst at Bloomberg Intelligence, Eric Balchunas, wrote on X.
Notably, the iShares Bitcoin Trust from BlackRock and the Fidelity Wise Origin Bitcoin Fund garnered the majority of new investments, while $2.8 billion exited the Grayscale fund. The selling activity included a significant portion from the estate of the bankrupt crypto exchange FTX, which divested most of its shares in the Grayscale vehicle.
Analyzing Bitcoin’s Challenges
Bloomberg analysts reveal that Bitcoin’s recent problems are caused by weak financial conditions, like higher interest rates, a stronger dollar, and a lot of selling pressure. Traders closing out their GBTC arbitrage bets and the FTX bankruptcy estate selling off assets have caused this pressure. Sean Farrell, Head of Digital-Asset Strategy at Fundstrat Global Advisors, thinks that the FTX sales could decrease an oversupply, which could mean less intense selling pressure on GBTC.
While Bitcoin enjoyed a remarkable 160% surge in the previous year, surpassing traditional assets, its performance has waned since the start of the year, trailing behind global markets. Despite this setback, the hope was that introducing ETFs would encourage broader cryptocurrency adoption by institutional and individual investors.
Interestingly, the report highlights that other cryptocurrencies, including Ether and BNB, faced challenges in Asia on the same day. Bitcoin, the largest digital asset, currently sits approximately $30,000 below its pandemic-era record of almost $69,000 set in 2021.
Will Bulls Buy the Dip?
Despite a recent dip, Bitcoin’s 2024 outlook remains bullish. New spot Bitcoin ETFs and an upcoming halving are set to create long-term demand and reduce sell pressure. Anticipated Federal Reserve interest rate cuts in 2024 suggest improving liquidity conditions, aligning with rising demand and falling supply—a favorable combination for Bitcoin.
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