Bitcoin’s Post-ETF Slump: What’s Behind the 20% Decline?

• Bitcoin has tumbled by over 20% since reaching a three-year high post the approval of spot bitcoin exchange-traded funds (ETFs) in the United States.
• The decline is attributed to profit-taking by investors, a substantial shift in funds from Grayscale to new ETFs, the sale of assets from a bankrupt crypto exchange, and a broader market correction impacting crypto stocks like Coinbase.

LONDON, Jan 23 (Reuters) – Bitcoin, the world’s leading cryptocurrency, has experienced a significant downturn of over 20% since reaching its peak earlier this month. This decline comes in the wake of the United States approving its first spot bitcoin exchange-traded fund (ETF), a decision that initially fueled investor optimism but eventually led to profit-taking.

As of now, Bitcoin is trading at $38,900, down 20.6% from its recent high of around $49,000 on Jan. 11, following the approval of spot bitcoin ETFs by the U.S. Securities and Exchange Commission.

Analysts at Deutsche Bank highlight that nearly $4 billion has flooded into the new spot bitcoin ETFs, with significant investments directed towards products managed by industry giants BlackRock and Fidelity. However, a noteworthy portion of this influx, approximately $2.8 billion, represents a shift away from Grayscale—formerly a fund, now transformed into an ETF—that once dominated the regulated bitcoin investing market.

The turbulence in Bitcoin’s value is further exacerbated by the sale of assets from the bankrupt crypto exchange FTX, according to Deutsche Bank. This unforeseen development has added an extra layer of complexity to the market dynamics, contributing to the downward pressure on prices.

In a separate but interconnected development, shares in Coinbase (COIN.O), the preeminent U.S. crypto exchange, faced a 4% dip in pre-market trading on Tuesday. JPMorgan’s downgrade of the stock to underweight from neutral acted as a catalyst, with the bank expressing skepticism about the impact of bitcoin ETFs on the broader ecosystem. JPMorgan’s analysis suggests that the enthusiasm surrounding ETF approval may not live up to market participants’ expectations, casting a shadow on the overall sentiment.

This downturn in Coinbase shares also reflects a broader trend, with other crypto stocks feeling the heat of the market correction. The interconnected nature of the cryptocurrency market means that developments in one segment can have cascading effects on others, as evidenced by the recent fluctuations.

As the market navigates through these shifts, investors are closely monitoring the interplay between ETF dynamics, institutional flows, and external factors such as asset sales from struggling platforms. The resilience of the cryptocurrency market will be tested as it adapts to the evolving landscape, seeking stability amid the current uncertainties.