BTC price recently soared to the brink of $49,000 but soon after, the price dropped by $3,000. As the article is being prepared, the price stands at $46,200, though just minutes before it was at $45,800. So, what is the reason for this decline? What should investors expect?
Why Is Bitcoin Falling?
Firstly, before delving into the impact of ETFs, we must remember that today’s inflation data was unfavorable. Regardless of the base effect or post-holiday returns, the Fed has a card up its sleeve to maintain a hawkish stance for a while longer. Employment data and wage increases have come in strong against the risk markets. Now, considering that headline inflation has also risen by 0.2% annually, it makes sense why Powell will keep explaining why they can only do a maximum of 75 basis points cut this year at the meeting at the end of January.
On the other hand, Wall Street is getting acquainted with the volatility of cryptocurrencies. They are used to walking on shaky ropes, having survived ordeals like Lehman and shaking the world with inflated mortgage credits. Therefore, cryptocurrencies should not be too challenging for them. The reason for the decline on the ETF side could be due to profit-taking by those who benefited from the negative premium of GBTC dropping by -2% during its conversion to an ETF. It is thought that a significant portion of the strong volume on the first trading day came from GBTC sales.
Lastly, we had mentioned that about 95% of the circulating supply was in profit. This metric had been signaling a correction for a while, and the recent surge provided sellers with a great opportunity. Although short-term fluctuations may continue, entries through the ETF channel are expected to persist, keeping the medium and long-term outlook positive.
