24 January (Financial Times Markets)
Over the last two weeks, Bitcoin’s value has declined by 15%, with certain investors capitalizing on the highly anticipated launch of Bitcoin exchange-traded funds (ETF) earlier this month to secure profits and liquidate their positions in the unpredictable cryptocurrency.
The price of bitcoin dropped as much as 3 percent on Tuesday, dipping below $39,000 for the first time since early December, before recovering slightly in afternoon trading.
The current downturn erases a portion of the substantial gains from the late increase last year. During that period, there was intense speculation that the introduction of mainstream stock market funds linked to the leading cryptocurrency would attract fresh investors to Bitcoin.
However, the influx of funds into the ETFs, several of which were introduced by major Wall Street entities like BlackRock, has disappointed investors, resulting in substantial losses. As of Tuesday, the 10 new funds, approved by the US Securities and Exchange Commission and launched on January 11, had collectively attracted $4.7 billion, as reported by the crypto investment group CoinShares. Despite Bitcoin trading at $46,100 on the day of the ETFs’ launch, its value has steadily declined since then.
At the same time, $3.4billion has left Grayscale’s fund, the world’s largest bitcoin investment vehicle, since it converted to an ETF alongside the new launches.
Again, analysts believe that a significant portion of the funds in the 10 new funds likely originated from investors leaving Grayscale, which imposes higher fees compared to its rivals. Douglas Comin, a senior crypto options trader at XBTO, remarked, “What people didn’t realize is that there would be a substantial exit from Grayscale. If you delve deeper, you’ll find that the majority of inflows aren’t fresh capital; instead, it’s investors transferring from Grayscale to another ETF.
“These ETFs were super highly anticipated, and now we see that (a bitcoin bull run) is not going to materialise, at least not as quickly as the market wanted,” he added.
The transformation of Grayscale’s decade-old Bitcoin trust has enabled certain investors, who were previously limited to selling trust shares at a considerable discount compared to the bitcoin price, to completely liquidate their holdings. The fund’s total size has decreased from $28 billion earlier this month to $22 billion by the end of trading on Monday.
A bit synopses on bitcoin. Bitcoin is a decentralized digital currency and a form of cryptocurrency. It operates on a peer-to-peer network, allowing for direct transactions between users without the need for intermediaries such as banks. Bitcoin transactions are recorded on a public ledger called the blockchain, which is maintained by a network of computers commonly referred to as miners. Bitcoin can be used for various purposes, including online purchases and as a store of value. It is globally known for its finite supply and the process of mining, which involves solving complex mathematical problems to validate transactions and add them to the blockchain.
The significant 15% drop in Bitcoin following the ETF launch prompts a closer look into the dynamics influencing the cryptocurrency market. Recognizing the elements that contribute to these fluctuations is vital for investors operating through the dynamic terrain of digital assets. As the crypto space continues to expand, staying informed and vigilant remains essential for making informed decisions in this rapidly changing environment.
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