Bitcoin plunges 20% following launch of US Bitcoin ETFs

Bitcoin, the world’s leading digital currency, has seen a sharp decline of nearly 20% since January 11. This follows the launch of the inaugural Exchange-Traded Funds (ETFs) that invest directly in Bitcoin. The downturn has been attributed to increased caution among investors regarding the potential effects of these new financial products.

On the day of the ETFs’ launch, Bitcoin soared to a high of US$49,021. However, by 8.33am today in Singapore, the value of Bitcoin had plummeted to US$39,718. This marks a 19% drop from the previously noted intraday peak.

Some nine American spot Bitcoin funds started trading on January 11. This includes the Grayscale Bitcoin Trust (GBTC), valued at US$22 billion, which transitioned from a closed-ended structure into an ETF. A considerable net of US$1.2 billion had flowed into these funds within the first six days of operation, according to Eric Balchunas, a Senior ETF Analyst at Bloomberg Intelligence.

The majority of the influx was recorded by BlackRock’s iShares Bitcoin Trust and Fidelity’s Wise Origin Bitcoin Fund. Conversely, an outflow of US$2.8 billion was noted from the Grayscale fund, as stated by Balchunas. One of the notable sellers was the estate of the now-bankrupt crypto exchange, FTX. The estate off-loaded the bulk of its shares in the Grayscale vehicle.

Sean Farrell, head of the digital-asset strategy at Fundstrat Global Advisors LLC, highlighted that over the past two weeks, Bitcoin has been challenged by tougher macro conditions — evidenced by rallying rates and a strengthening dollar and significant selling pressure from traders unwinding their GBTC arbitrage positions along with the FTX bankruptcy estate offloading assets.

Farrell also suggested that with the FTX disposals, a supply overhang could potentially be removed. This could cause the intense selling pressure from GBTC to lessen shortly.

Exchange Traded Funds

Last year, Bitcoin saw a remarkable surge of almost 160%, greatly outperforming traditional assets such as stocks. This was driven by speculation that the introduction of ETFs would lead to broader adoption of the cryptocurrency by both institutional and individual investors. However, since the start of the year, the token has been on a downward trend, lagging behind global markets.

Alongside Bitcoin, other digital assets such as Ether and BNB also struggled in Asia today. Bitcoin, which remains the largest digital asset, is now US$30,000 below its 2021 pandemic-era record of nearly US$69,000, reported Bangkok Post.