The Bitcoin community remained anxious as we crossed over to the year 2024. Speculations were imminent allover on the possible outcome of the Securities Exchange Commission Bitcoin ETF approval or dismissal. This came with many Bitcoin investors awaiting a crypto bull run usually characterized by huge price swings of Bitcoin and other crypto assets making the investors a good fortune. True to it, days to and after the 10th January spotlight when SEC made the ruling Bitcoin went up to reach $49,048. Then came the Wallstreet money with records $4.1 billion of inflows into Bitcoin ETFs with BlackRock and Fidelity Investment leading the pack. Anxiety gripped the crypto ecosystem whether, this was the last time we were going to see Bitcoin price at $40k with many pundits opining the price may swell to $100K and even rocket to $1.5 million per Bitcoin in years to come!
We are days past the ETF approval and the price of Bitcoin has come tumbling to $39,900 at the time of this writing. It means in the past two weeks price of Bitcoin has shed almost $10k and anxiety is evident within the community again on what is happening and will we ever see a crypto bull run again?
Below, we examine some of factors contributing to the recent plummet of Bitcoin price in a bid to understand the current trends affecting the price of the premier cryptocurrency.
Investors Exiting Grayscale
Crypto asset management firm Grayscale first introduced the premier listed Bitcoin fund operating a trust product in 2013. The trust has been a success for the firm evident with a return of 300% in 2023. Noteworthy, investors were pained for years when selling off the GBTC shares at a huge discount compared to the price of Bitcoin and to the benefit of Grayscale. Therefore, with the conversion of this Bitcoin trust to a Bitcoin ETF, a lot of investors who for years held the GBTC have been able to exit their holdings and opt for ETFs issued by other firms like Blackrock and Fidelity which are cheaper to hold. Eventually, the Grayscale fund continues to reduce in size from $28 billion at the start of January 2024 to $22 billion on the second week of the ETF trading.
In an attempt to remain competitive Grayscale reduced its management fee from 2 percent at the time of launch to 1.5 percent. The move still made the firm more expensive compared to its competitors whose management fee was as low as 0.12 percent. Consequently, a lot of investors have moved their money out of Grayscale into other ETF issuing entities.
Short term profits
Over the years the cryptocurrency market seems to be picking some peculiarities common in the stock market. One such trend is the “selling the news” phenomena which is a scenario where investors proceed to take profits realized from a stock after breaking of good news that usually leads to an appreciation of a stock price. In this case investors decide to take the short-term profits caused by the good news as opposed to waiting for future gains. If this is done by a large group of investors it causes a flooding of stock into the market affecting supply and demand hence driving the price of a stock down.
This can be used to explain the case leading to the decline of Bitcoin price. The news of possible approval of Bitcoin ETF last year, had investors buy more Bitcoins with the expectation the price will go up and liquidate post approval while taking profits from the price swings. Therefore, exchanges and crypto funds such as Grayscale experienced huge outflows in the post approval period leading to the plummeting of Bitcoin price in the market.
FTX Estate Sale
Among the outflows experienced by Grayscale emanates from the sale of FTX estate that held 22.28 million GBTC shares. The estate holding the GBTC shares for the FTX exchange and Alameda Research sold at least two thirds of their GBTC shares offloading more than $600 million into the market after the sale. This redeeming of GTBTC shares further contributes to the weakening of Bitcoin because it affects the supply and demand of the crypto asset.
A Recovery?
In an interesting update, 20 days after the Bitcoin ETF approval. The price of Bitcoin has made a rebound to $43,300 after a period of decline to $38k. Noteworthy, the GBTC outflows at the same time have declined by over 50% which maybe signaling an end to investors who were moving their BTC out of Grayscale into other cheaper ETFs in the market. This price recovery is setting optimism among crypto traders and investors who feel this may be a move to the bull market as the awaited Bitcoin halving keeps fast approaching. The Greed Fear and Greed Index has moved from the neutral region to greed zone indicating there is renewed purchase of Bitcoin with investors pile pressure on existing supply of Bitcoin through purchase ahead of the halving.
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