Bitcoin Bloodbath: Lowest Levels Since ETF – What Went Wrong?

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

As enthusiasts and investors closely monitor these developments, the implications of Bitcoin’s decline to its lowest point following the ETF’s approval will certainly reverberate across the broader financial landscape.

The Bitcoin ETF boom is set to collapse

The price of Bitcoin fell to its lowest level since the United States approved nearly a dozen exchange-traded funds containing the cryptocurrency last week.

The largest cryptocurrency fell 4.3% to $40,809 and is now down about 11% since approval by the U.S. Securities and Exchange Commission on Jan. 10. Bitcoin surged about 160% last year on hopes that funds would boost demand.

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

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

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

The 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 into the BlackRock fund, leading IBIT to surpass this milestone. Fidelity Investments is close behind. The company’s FBTC Bitcoin ETF saw inflows of $358 million yesterday, the largest single-day total since the fund’s inception a week ago.

In total, Fidelity’s fund received approximately $880 million. BlackRock and Fidelity led the initial consolidation of the new asset, with the two firms capturing 68% of all inflows into the nine new ETFs on the market, totaling more than $2 billion.

According to Bloomberg Intelligence, investors exiting Grayscale Investment’s GBTC fund represent major inflows. Grayscale’s Bitcoin Trust, founded in 2013, had more than $28 billion in assets under management when it converted to an ETF, but has seen withdrawals of about $1.6 billion since it began trading.

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

Publicly traded companies related to the digital assets market also declined. Coinbase, the largest U.S. cryptocurrency exchange, lost about 6.7% and is down 17% since authorization. Marathon Digital, a bitcoin miner, fell 6.9%, while MicroStrategy, a bitcoin proxy, fell 3%.

Why is the cryptocurrency market down today?

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

The strengthening US dollar is putting selling pressure on Bitcoin. The US dollar index (DXY) reversed from 101 in early January and rose to 103.50 on January 18, boldly fending off calls from the 100-day exponential moving average (EMA).

Increased demand and higher US Treasury yields supported this sustained strength. US retail sales rose more than expected in the final month of 2023. According to data from the United States Census Bureau, December 2023 retail sales beat expectations, growing 0.6% compared to 0, 4% expected and 0.3% compared to the previous period.

US Treasury bond rates also rose significantly, indicating that investors are changing their expectations about the Federal Reserve’s (Fed) rate cut plan.

Furthermore, the strengthening US economy, as evidenced by the latest statistics, is changing the market’s accommodative expectations, although the odds of a rate cut 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 prices of major cryptocurrencies has triggered a wave of liquidations in the futures market. Bullish traders appear to have been caught by surprise, resulting in a rapid explosion of long liquidations.

Over $137 million in long positions were liquidated in the cryptocurrency market in the last 24 hours, of which $89 million was lost in the last 12 hours. When long derivative bets are liquidated in the absence of buying pressure from trading volume, cryptocurrency market prices decline.

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