The recent approval of spot Bitcoin exchange-traded funds (ETFs) has brought about a predictable consequence in the form of a market correction. As a result, Bitcoin and other cryptocurrencies faced a decline in value.
Over the past 24 hours, Bitcoin has experienced a 3% drop, with its price currently at $40,500. This is a significant difference from its recent peak of over $48,000, which occurred in early 2022. The spike in Bitcoin’s price was largely driven by the frenzy surrounding the approval of spot Bitcoin ETFs in the United States. However, this excitement has now turned into a trend of “buy the rumor, sell the news,” causing investors to sell their assets despite the long-term bullish outlook.
Antoni Trenchev, the co-founder of crypto lender Nexo, commented on the current situation, stating, “Bitcoin is currently hovering around $40,000 as selling pressure from the Grayscale Bitcoin Trust (GBTC) dampens the euphoria surrounding ETF approval. This has left investors with a feeling similar to a hangover after the end of a party. The short-term fate of Bitcoin depends on the extent and duration of GBTC selling, as well as the potential counterweight provided by inflows into the other 10 spot Bitcoin ETFs.”
The selling pressure appears to be primarily affecting the Grayscale Bitcoin Trust, which transformed into an ETF following the Securities and Exchange Commission’s approval on January 10th. Michael Sonnenshein, CEO of digital asset manager Grayscale, acknowledged that they did not expect to maintain their 100% market share indefinitely in a recent interview.
Overall, the cryptocurrency market is currently experiencing a correction due to the sell-off triggered by the approval of spot Bitcoin ETFs. It remains to be seen how long this correction will last and whether other spot Bitcoin ETFs will help offset the selling pressure.
“It’s not surprising, with the fund as big as it is—$28 billion—you’re going to see some outflows out of the product,” Sonnenshein said. At the time, Sonnenshein added that there had been a couple hundred million dollars of outflows, but that it had been contrasted directly with inflows to other issuers.
However, as capital flows continue to shake out, it does look like some Bitcoin is leaving the ecosystem, with the market capitalization of the Grayscale Bitcoin Trust falling to $25.6 billion as of Friday and with shares in the fund down a further 2.7% in premarket trading on Monday. This may be further evidence that crypto traders are looking to cash in on gains—and some market participants are bracing for even more violent selling pressures.
Bitcoin’s Ascendancy
“Bitcoin’s ascent could be called long-in-the-tooth because we haven’t seen one of its notorious 30%+ price slumps since the back end of 2022,” said Nexo’s Trenchev. “A drop of such magnitude from the recent peak of $49,000 would take Bitcoin to $34,000.”
Altcoin Decline
Beyond Bitcoin, Ether—the second-largest crypto—lost 4% to $2,375. Smaller tokens or altcoins were also in the red, with Cardano down 6% and Polygon plunging 5%. Memecoins also fell, with Dogecoin dropping 5% and Shiba Inu shedding 4%.