Bitcoin fell below the key $40,000 level on Monday, dropping as low as $38,600 at one point. This marks a nearly 20% decline from the local high of around $48,000 reached last week in the aftermath of the SEC approving several Bitcoin spot ETFs.
Lead Up To The Drop
Bitcoin saw a dramatic surge last week after years of anticipation, as the SEC finally approved the listing of spot Bitcoin ETFs in the US. The ProShares Bitcoin Strategy ETF (BITO) debuted on Tuesday, quickly followed by similar funds from other providers like Valkyrie and VanEck.
This long-awaited news triggered FOMO among investors, sending Bitcoin up over 15% to nearly $48,000 by Thursday. However, the rally soon lost momentum as traders likely took profits following the sharp run-up.
Bitcoin faced resistance around $47,500 and struggled to push higher. It then turned down on Sunday and accelerated lower on Monday amid a wider market selloff in risk assets.
Drivers Of The Latest Decline
Several factors seem to be at play in the latest leg down for Bitcoin:
1. Profit-Taking After Sharp Gains
It’s quite common to see some profit-taking after such a strong short-term surge. Bitcoin was up nearly 30% from late September before topping out around $48,000. With the price stalling and unable to break higher, traders who bought in on the way up likely decided to lock in gains, adding selling pressure.
2. Cooling Hype Around the ETF Launch
The excitement around the Bitcoin ETF launch last week led to inflated expectations around immediate impact and flows. However, once the dust settled, the reality is these new investment vehicles will take time to attract significant capital. So the outsized optimism has cooled off lately.
3. Spillover From Equity Market Weakness
Stocks have dropped in recent days amid worries over Federal Reserve policy and rising interest rates. Cryptocurrencies often trade in line with tech stocks, so the equity market declines have weighted on Bitcoin as well.
ETF Inflows So Far
While the ETF launch euphoria might have gotten ahead of itself, these new funds have indeed seen strong interest from investors in their first few days of trading:
|Assets Under Management
|Flows On Day 1
|ProShares Bitcoin Strategy ETF (BITO)
|October 19, 2024
|Valkyrie Bitcoin Strategy ETF (BTF)
|October 22, 2024
|VanEck Bitcoin Strategy ETF (XBTF)
|October 23, 2024
The ProShares ETF saw the strongest immediate demand as the first mover, attracting over half a billion in assets on day one. The other ETF that came out subsequently also saw respectable interest, garnering tens of millions worth of investments out of the gate.
In total, these three funds have amassed around $1.3 billion in the first few days – an impressive figure but below the multi-billion levels some analysts were forecasting.
What Happens Next?
It remains to be seen if Bitcoin has bottomed yet in this move or if more downside is in store.
On the bullish side, some analysts point to the fact that despite sharp intraday swings lately, Bitcoin has held the $40,000 area on each drop so far. This level has been a key macro support since September. As long as buyers defend this zone, the optimism from 2020 about entering a prolonged bull market could persist.
However, other experts caution about lingering risks that could lead to a retest of the major support band between $30,000-$35,000 – such as tighter Fed policy, risk-off moves in equities, potential mining disruptions in Kazakhstan, and fears of a “double top” pattern playing out if $48,000 is rejected decisively.
Most analysts advise a cautious approach in the near-term but maintaining a long-term positive outlook due to the recent ETF developments and improving Bitcoin adoption fundamentals.
The path ahead promises to be volatile but could present strong buying opportunities for investors willing to stomach the swings. Ultimately over the longer time frame of several months to years, Bitcoin’s prospects look upbeat given its fixed supply and growing real-world utility.
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