Post-ETF Pain: Bitcoin Plunges 20%

Bitcoin has dropped over 20% from its three-year high reached shortly after the U.S. Securities and Exchange Commission (SEC) approved the first spot Bitcoin exchange-traded funds (ETFs) in January. Analysts cite a combination of profit-taking after the long-awaited event and broader market uncertainty as reasons for the correction.

Bitcoin Retreats Post-ETF Approval Surge

The price surge in anticipation of the ETF approval saw Bitcoin reach nearly $49,000 on January 11th. However, since the green light for the ETFs, the cryptocurrency has retreated steadily, trading at around $39,500 at the time of writing.

According to some analysts, they have seen a classic “sell the news” scenario unfold. Investors had largely priced in the ETF approval for months, and once it actually happened, some took the opportunity to lock in profits, they added.

While nearly $4 billion has flowed into the new spot ETFs, a significant portion, analysts note, came from existing funds like Grayscale which transitioned into an ETF, suggesting less net new investment than what the headline numbers might imply. Additionally, the ongoing liquidation of assets from bankrupt crypto exchange FTX has added downward pressure on prices.

Bitcoin slightly above the $40K level today. Chart: TradingView.com

Yuya Hasegawa, crypto market analyst at Japanese bitcoin exchange Bitbank, said:

“It seems that the seemingly large amount of daily outflows from GBTC is affecting the market in a psychological way.”

The downturn extends beyond Bitcoin, with other major cryptocurrencies also experiencing losses. Ether, the world’s second-largest cryptocurrency, is down nearly 4%, while Solana and other altcoins have seen similar declines. The price dips have also impacted crypto-related stocks, with Coinbase shares falling around 4% in pre-market trading.

Top 10 cryptos drenched in red today. Source: Coingecko

Despite the recent price correction, analysts remain divided on the near-term outlook for Bitcoin. Some believe the pullback may be nearing its end, with support levels around $36,000 likely to hold. Others believe further downside is possible before a sustained rebound.

BTC price action in the last week. Source: Coingecko

Bitcoin: Volatility Persists, Long-Term Outlook Strong

Bitcoin has experienced significant corrections after major news events in the past. However, the long-term fundamentals remain strong, and many believe Bitcoin is still on track for a new all-time high in 2024.

The recent market volatility highlights the risks involved in investing in Bitcoin and other cryptocurrencies. While the potential for high returns exists, investors should be aware of the significant price swings and uncertain regulatory landscape before entering the market.

As the post-ETF aftermath unfolds, the cryptocurrency market finds itself submerged in a sea of red. The volatility underscores the sensitivity of digital assets to market sentiment and regulatory developments.

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