The launch of the first Bitcoin exchange-traded funds (ETFs) in the US last week was met with much fanfare, sending Bitcoin prices soaring to new highs. However, the excitement was short-lived as Bitcoin prices have since plunged nearly 25% amidst fading hype and skepticism about the impact of the ETFs.
Bitcoin Hits New Highs on ETF Optimism
In the lead up to the launch of the ProShares Bitcoin Strategy ETF (BITO) and Valkyrie Bitcoin Strategy ETF on January 11 and 12 respectively, Bitcoin prices skyrocketed to an all-time high of around $48,000 on January 10 [1]. Investors were optimistic that the ETFs would bring increased mainstream adoption and institutional investment into Bitcoin and other cryptocurrencies.
However, prices soon began to taper off after the actual launch of trading of the ETFs. By January 14, Bitcoin had plunged to just above $41,000 amidst fading hype and skepticism about whether the ETFs would live up to expectations [1].
The excitement also failed to spill over into other major cryptocurrencies, with the overall crypto market cap dropping by over 8% over the week [2].
Investor Sentiment Turns Neutral
Sentiment in the crypto market has also weakened significantly according to the Crypto Fear & Greed Index. The index plunged from showing “Extreme Greed” just before the ETF launch to a more neutral position over the week [2].
This indicates fading investor enthusiasm and more uncertainty in the market following the anti-climatic launch of trading of the Bitcoin ETFs.
| Date | Crypto Fear & Greed Index | Sentiment |
|---|---|---|
| January 9 | 79 (“Extreme Greed”) | High optimism before ETF launch |
| January 15 | 49 (“Neutral”) | Fading optimism after launch |
With investors less willing to pay premium prices for Bitcoin, a price decline was imminent.
Underwhelming ETF Inflows
In addition to fading hype, analysts pointed to the lacklustre inflows into the ETFs as a reason for Bitcoin’s price decline over the week.
Despite the ETFs touting over $1 billion in trading volume on their first day, the actual new inflows totalled only $165 million for ProShares’ BITO and $65 million for Valkyrie’s ETF [3]. This was far below expectations.
“The inflows into the new bitcoin ETFs have been very disappointing relative to the hype and exposure. This goes to show that US institutional demand might not be what the market hoped for,” said one analyst [3].
Without the expected boost from institutional investments, the air quickly went out of Bitcoin’s sails.
Bitcoin Miners Hit Hard
The fading excitement hit Bitcoin mining stocks especially hard over the week. With Bitcoin prices declining, profitability for miners plunged as well.
For example, prominent mining company Riot Platforms saw its stock plunge 15% on January 13 while Marathon Digital stock was down 8% [4]. Other mining stocks like Hut 8 and Bitfarms saw similar declines.
This in turn exacerbated selling pressure on Bitcoin as miners looked to cover costs by selling some of their inventory.
What’s Next for Bitcoin?
While the ETF launch disappointment triggered Bitcoin’s price decline over the past week, analysts believe there are some positive signs that point to a potential recovery.
Large wallet holders continued accumulating Bitcoin through the dip. According to on-chain analytics provider Santiment, wallets holding between 10 to 100 BTC saw their balances increase by 47,000 BTC even as prices declined [5]. This suggests long-term confidence still exists in Bitcoin.
Additionally, some analysts believe Bitcoin may have merely gotten ahead of itself before the ETF launch. A period of stabilization and consolidation around $40,000 could set the stage for the next bull run [6].
More Bitcoin ETF applications are also still in the pipeline with the SEC, which could help revive interest later this year.
While the ETF launch disappointment triggered an abrupt end to Bitcoin’s ascent, underlying sentiment still remains largely positive in the long run. For investors who missed out on the ETF hype, the current consolidation period presents a good opportunity to buy the dip before the next inevitable run-up.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
