Bitcoin bloodbath: Lowest levels hit since ETF cheers – What went wrong?

In a surprising turn of events, the crypto market has witnessed a significant downturn as Bitcoin, the pioneering digital currency, plummets to its lowest level since the approval of Exchange-Traded Funds (ETFs). This downturn marks a notable shift in the landscape of the volatile crypto market, raising concerns and prompting discussions about the factors contributing to this sudden decline.

As enthusiasts and investors closely monitor these developments, the implications of Bitcoin’s drop to its lowest point post-ETF approval are sure to ripple through the broader financial landscape.

Bitcoin’s ETF boom to bust

Bitcoin’s price has dropped to its lowest level since the US approved almost a dozen exchange-traded funds that contain the crypto last week.

The largest crypto declined as much as 4.3% to $40,809 and is now down roughly 11% since the US Securities and Exchange Commission’s approval on January 10. Bitcoin soared about 160% last year on hopes that the funds would broaden demand.

At press time, the price of Bitcoin (BTC) is $40,882.08, with a 24-hour trading volume of $24,795,281,178.17. This reflects a -4.35% price drop in the last 24 hours and a -11.35% price drop in the last 7 days.

The global crypto market cap is $1.7 trillion today, down 4.15% in the last 24 hours and 69.53% a year ago. As of today, Bitcoin’s market cap is $801 billion, reflecting a 47.26% domination. Meanwhile, stablecoins’ market cap is $135 billion, accounting for 7.97% of the total crypto market cap.

Traders are constantly tracking the inflows into ETFs. BlackRock Inc.’s fund has already surpassed $1 billion in investor inflows, becoming the first in the group to do so since trading began last Thursday.

Bitcoin Fear and Greed Index is 63 – Greed
Current price: $42,400 pic.twitter.com/cvANStK9S7

— Bitcoin Fear and Greed Index (@BitcoinFear) January 18, 2024

According to Bloomberg data, investors deposited $371 million in the BlackRock fund, bringing IBIT past the milestone. Fidelity Investments is close behind. The company’s FBTC Bitcoin ETF saw $358 million in inflows yesterday, the greatest single-day total since the fund’s inception a week ago.

In total, Fidelity’s fund has received approximately $880 million. BlackRock and Fidelity led early consolidation in the new asset, with the two firms getting 68% of all inflows across the nine new ETFs on the market, totaling over $2 billion.

According to Bloomberg Intelligence, investors exiting Grayscale Investment’s GBTC fund account for major inflows. Grayscale’s Bitcoin Trust, founded in 2013, had over $28 billion in assets under management when it converted to an ETF but has witnessed approximately $1.6 billion in withdrawals since trading began.

Grayscale’s Bitcoin ETF has a sector-high management fee of 1.5%. Management fees at BlackRock and Fidelity are a fraction of the cost of GBTC, but they are not the lowest fees among the new Bitcoin ETFs; that honor goes to Franklin Templeton, which charges 0.19% in management fees. Franklin accounts for fewer than 2% of total Bitcoin ETF inflows despite its low fee.

Publicly traded firms linked to the digital asset market also fell. Coinbase, the largest US cryptocurrency exchange, lost approximately 6.7% and is down 17% since the authorization. Marathon Digital, a bitcoin miner, plummeted 6.9%, while MicroStrategy, a bitcoin proxy, fell 3%.

Why is the crypto market down today?

Trading volumes in the crypto market have declined due to a variety of causes, including volatility, earnings season, and macroeconomic changes.

The stronger US dollar is putting selling pressure on Bitcoin. The US Dollar Index (DXY) reversed from 101 in early January and surged to 103.50 on Jan. 18, boldly rejecting the demands of the 100-day exponential moving average (EMA).

Rising demand and higher US Treasury yields have supported this sustained strength. Retail sales in the United States climbed more than predicted in the last month of 2023. According to data from the United States Census Bureau, December 2023 Retail Sales surpassed expectations, growing by 0.6% vs 0.4% predicted and 0.3% from the prior period.

US Treasury rates have also risen significantly, indicating that investors are altering their expectations on the Federal Reserve’s (Fed) rate-cutting plan.

Furthermore, the strengthening US economy, as evidenced by the most recent statistics, is changing the market’s dovish expectations, albeit the odds for rate reduction in March and May remain around 50 basis points.

CPI inflation, job creation, and earnings increased in December, but economic activity remained robust.

The drop in the prices of key cryptocurrencies has triggered a wave of liquidations across the futures market. Bullish traders appear to have been taken off guard, resulting in a fast burst of long liquidations.

Over $137 million in long positions have been liquidated in the last 24 hours on the crypto market, with $89 million lost in the last 12 hours. When long derivative bets are liquidated in the absence of purchasing pressure from trading volume, crypto market prices fall.

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