The launch of the first spot Bitcoin exchange-traded fund (ETF) in the United States last week was a watershed moment for the cryptocurrency industry. However, shortly after the ProShares Bitcoin Strategy ETF (BITO) and Valkyrie Bitcoin Strategy ETF (BTF) began trading on Thursday, Bitcoin underwent a sharp sell-off, plummeting from a two-year high of $49,000 to $41,500 over the weekend.
key point
- The launch of the first spot Bitcoin ETF in the United States was a “sell the news” event, with Bitcoin prices initially surging on the news and then falling.
- The price of Bitcoin hit a two-year high of $49,000 around the time the ETF was launched, before falling to $41,500.
- Analysts say the $40,000 level is an important near-term support level to watch for Bitcoin.
- The ETF launch and subsequent sell-off caused a surge in Bitcoin volatility, resulting in the liquidation of approximately $112 million worth of long positions.
- Even after the plunge, analysts are generally optimistic about Bitcoin’s long-term prospects, considering increased institutional demand.
The extreme volatility highlights why many analysts have warned that the ETF launch could end up being a “sell the news” event if Bitcoin’s rapid rise this year has already been priced in. The anticipation built ahead of the ETF led to a 40% price surge in the first two weeks of 2024, supporting these concerns.
“Sell the news” refers to the practice in which asset prices often enter a highly anticipated event and then immediately plummet as traders take quick profits. The ETF hype has further intensified this dynamic.
Bitcoin’s plunge led to the liquidation of about $112 million worth of leveraged long positions on Thursday, sending the price plummeting from $49,000 to $46,000 in a matter of minutes. Volatility subsided on Friday but flared up again on Saturday. The price dipped below $44,000 on Saturday morning, and a sudden crash on Saturday night took Bitcoin to nearly $41,500, its lowest since mid-December.
Analysts say that while painful for speculators on the wrong side of the trade, the correction was likely inevitable given that Bitcoin, which led to the ETF’s launch, has surged 150% in the past year and 57% in 2023 alone. Most technical measures have resulted in excessive parabolic rises.
“Given Bitcoin price performance of more than 150% compared to 2023, a correction to at least $40,000 per Bitcoin would be within the range of a typical correction,” said Alex Kuptsikevich, an analyst at trading firm FxPro.
Kuptsikevich and others believe $40,000 could represent the next major support level if prices continue to fall this week. This level could encourage new buying from long-term investors who have missed out on Bitcoin’s rally over the past year.
So while the ETF launch sparked a frenzy of speculative trading and leverage that has proven unsustainable, analysts say demand from institutional investors for direct exposure to Bitcoin remains strong despite recent volatility. The ability to gain exposure through regulated ETFs traded on major stock exchanges makes Bitcoin much more accessible to pensions, endowments, retirement accounts and other large investors who were previously restricted from purchasing the cryptocurrency directly. .
Falling U.S. Treasury yields and optimism that inflation has potentially peaked could pave the way for the Federal Reserve to cut interest rates by early 2025, according to Bitbank analysts, and despite the post-ETF hangover, Bitcoin prices over the long term They say they can support .