Bitcoin experienced a significant downturn in January despite the recent approval of Bitcoin Spot ETFs in the United States. This downturn starkly contrasts the optimism that prevailed in the crypto industry following the announcement by the U.S. Securities and Exchange Commission (SEC) regarding its decision on Bitcoin ETFs.
Bitcoin ETFs were initially hailed as a more accessible way for the general public to invest in Bitcoin, leading to optimistic projections for the cryptocurrency’s price. However, the excitement surrounding the launch of new U.S. spot exchange-traded funds for Bitcoin has diminished, resulting in Bitcoin’s worst performance in approximately a month.
For three consecutive days leading up to the beginning of this week, Bitcoin witnessed a decline, marking its longest losing streak since mid-December. Other cryptocurrencies, including Ethereum and Solana, also experienced declines. The challenging macroeconomic conditions, characterized by rising interest rates and a strengthening dollar, have contributed to the heightened volatility and market downturn for Bitcoin.
The increased market volatility began two weeks ago when the SEC approved eleven spot BTC ETFs. On the day these ETFs went live on U.S. exchanges, Bitcoin surged past $49,000 for the first time since 2022. However, the momentum quickly reversed, and Bitcoin began trading around and below the $43,000 support level. Subsequently, a week of sideways trading ensued, eroding the cryptocurrency’s bullish momentum.
Bitcoin is trading around $39,000, marking its lowest level this month and a $10,000 drop from its January high. In the past 24 hours, 126,807 liquidations occurred, totaling $332.83 million, with the most significant single liquidation on Bybit valued at $5 million.
Investors have also divested over $2 billion from the Grayscale Bitcoin Trust (GBTC) since its conversion into an exchange-traded fund earlier this month. Additionally, a mass unwinding of bullish perpetual futures contracts has led to negative basis and sub-zero funding rates, indicating a situation where perpetual trade at a discount to the underlying asset’s price reflects seller dominance.
There was widespread anticipation that ETFs would encourage broader adoption of Bitcoin by institutional and retail investors. Despite Bitcoin’s impressive 160% increase in value last year, surpassing traditional assets like stocks, the cryptocurrency has struggled to maintain momentum in 2024, lagging behind mainstream financial markets.
Furthermore, traditional financial firms exposed to Bitcoin ETFs have slashed fees to attract inflows. Invesco and WisdomTree have reduced costs by more than 60% on European Bitcoin products amid an influx of new exchange-traded funds available to U.S. investors.
The SEC’s recent approval of spot Bitcoin ETFs for BlackRock, Fidelity, and Invesco has created a flood of new products for U.S. investors. Multiple providers have lowered fees as international investment banks seek a new equilibrium between supply and demand. The anticipated expansion of costs is expected to be considerably lower than existing tracking products in other markets, such as Europe.
