After the approval of the spot Bitcoin ETF, BTC reached $48,969 on the Binance exchange and is now at $42,300. Although ETF net inflows are promising, massive GBTC redemptions have begun to deplete the company’s nearly 600,000 BTC reserves. Because the price did not rise further, whales took action, resulting in the drop on January 12th.
Why Did Cryptocurrencies Drop?
CryptoSlate’s research and data analyst James Van Straten wrote that the significant crypto drop could have been caused by the move of a single whale. The 15% drop in Bitcoin starting from $49,000 on January 11th was linked to the “sell the news” event following the ETF approval.
When analyzing the realized price of BTC supply, there was significant activity at the peak as the price rose with the hope of further increases. A whale who had accumulated $4.8 billion during Bitcoin’s all-time high in 2021 took the opportunity to unload their wallet as the price approached $49,000.
Van Straten shared data from on-chain analysis firm Glassnode and wrote:
“This is why (I believe) on January 12th, Bitcoin experienced its biggest one-day drop since the FTX collapse and hit rock bottom after the ETF started trading. Even if there was only a $1,000 difference between the entry and exit, the size of the whale’s BTC stack would have earned them a $100 million profit. Despite Bitcoin enduring its longest bear market to date, it still represents a valuable prize. Then this situation drove the market into a frenzy, combined with liquidations, ‘sell the news’ events, and record levels of losses.”
The Crypto Drop May Not Be Over Yet
Large-scale liquidations have severely worn down the bulls. Moreover, as Grayscale reserves dwindle, more supply ready for sale is being sent to Coinbase. While these may not pose a serious problem for now, as they likely see demand from other issuers, the likelihood of market fear subsiding without a weakening of GBTC sales seems slim.
Van Straten wrote:
“For context, $GBTC only sold 27 thousand Bitcoin with similar demand for entries into ETFs. This is not enough for me. I also don’t think FTX has liquidated its GBTC position yet.”
The Fed meeting at the end of the month and the long-standing excessively profitable environment suggest that the bulls may need to rest for a while longer.
