The recent approval of several spot bitcoin exchange-traded funds (ETFs) by the SEC was expected to usher in an era of widespread adoption and sky-high prices for the flagship cryptocurrency. Instead, btc-usd?utm_source=PR&utm_medium=PR&utm_campaign=bitcoin+plummets+20%25+post-ETF+approvals%3A+What%27s+behind+the+crash” rel=”nofollow”>bitcoin It has plummeted more than 20% from its 2024 high of $49,000 to just under $39,000 at the time of writing.
Where is the bottom of this collapse? Is this an opportunity to buy the dip? And most importantly, is this sharp correction the end of the cryptocurrency bull market? We explore the factors behind the sell-off and why this could ultimately lead to more bullish price action in the top cryptocurrency by market cap.
Miners selling bitcoin at the same time
A major factor driving the drop is that miners are dumping their bitcoin onto exchanges at a rate not seen since the FTX collapse in November 2022. The amount of btc held by miners has plummeted, indicating that they are selling their newly minted coins instead of the typical strategy of accumulating them as a long-term investment. This increase in selling pressure from miners has overwhelmed buying demand, even as major ETF providers purchase bitcoin to support their newly launched funds.
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Grayscale outputs add fuel to the fire
Grayscale bitcoin Trust has been sending billions in btc to Coinbase. Grayscale is one of the largest btc holders in the world, making significant capital outflows have a notable impact on the price action. GBTC outflows are being driven by particularly high expense fees of 1.5% compared to other spot ETF alternatives in the US. The situation worsened when FTX's estate redeemed nearly $1 billion worth of GBTC. When GTBC holders withdraw their shares, the corresponding btc sale takes place.
Imminent Mt. Gox Payments Spook Investors
Also contributing to the feeling of unease is Mt. Gox's long-term payment plan that is nearing completion. The defunct exchange is preparing to distribute 137,000 btc to its holders as restitution for funds lost in its infamous 2014 hack. Many recipients are expected to withdraw their money immediately and could flood the market with sell orders. This looming glut has investors worrying about whether bitcoin has enough demand to absorb the additional supply.
Continued macroeconomic headwinds
bitcoin's ties to risky asset classes mean it has suffered collateral damage from the Federal Reserve's relentless interest rate hikes and the strength of the US dollar putting pressure on alternative assets. Until inflation shows clear signs of slowing, investors are unlikely to find refuge in crypto. The Federal Reserve's actions have dashed hopes that an easing of monetary policy could stoke bitcoin's next bull run.
There may be light at the end of the tunnel
But there are reasons to be optimistic about the future of bitcoin. For one thing, miners' balances have fallen so dramatically that they are now lower than during the FTX-induced crisis last November. This indicates that much of the excess selling pressure has already been exhausted.
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As for Mt. Gox payments, creditors have held bitcoin for almost a decade and may choose to continue holding it now that the bitcoin+plummets+20%25+post-ETF+approvals%3A+What%27s+behind+the+crash” rel=”nofollow”>crypto Winter appears to be melting, instead collecting at depressed prices below $40,000.
ETFs now account for 0.5% of btc supply
Most importantly, each newly approved ETF has greedily grabbed hold of the bitcoin sold in the market over the past few weeks, as evidenced by their substantial and rapidly growing holdings.
BlackRock's bitcoin spot ETF netted a staggering 44,000 btc worth $1.75 billion within two weeks of its launch. At Fidelity's current rate, its ETF holds 30,000 btc. With another 30,000+ btc already under management in the remaining SEC-approved ETFs, these combined funds now have over 100,000 btc and counting.
Considering that the maximum supply of bitcoin is only 21 million, more than 0.5% of all bitcoin in existence is now locked up in just a handful of investment vehicles that serve institutional investors. And the appetite for bitcoin exposure will only grow as more mega-asset managers apply for spot ETFs to meet growing demand.
bitcoin's Imminent Halving Could Disrupt the Status Quo
With miners dumping coins ahead of the bitcoin halving, and validation rewards about to be reduced by 50% from 6.25 bitcoin per block to 3.125 bitcoin per block in April, the already declining issuance rate bitcoin will fall sharply. Historically, this quadrennial event has stifled the influx of new Bitcoins, as only half the number of coins enter circulation after the halving.
However, despite the current turmoil in the cryptocurrency markets, institutional intrigue in bitcoin continues to increase. Major asset managers have finally gained SEC approval for spot bitcoin ETFs to meet growing demand from institutional investors seeking exposure to cryptocurrencies.
Retail interest also remains resilient. The stage is being set for a serious imbalance between supply and demand throughout 2024. This, in turn, could act as fuel to drive prices higher, as liquid currencies become increasingly liquid. increasingly scarce in relation to the wave of new institutional and retail entrants.
If history is any indicator, bitcoin's previous halving events triggered spectacular bull runs that saw prices appreciate multiples over the next 12 to 18 months. Investor euphoria reached a fever pitch as mainstream media coverage attracted waves of new buyers happy to purchase bitcoin at ever-higher prices.
A similar pattern could emerge in the run-up to the April halving. The type of supply shock that may develop when bitcoin issuance falls off a cliff this spring, as interest continues to rise unabated, has the potential to trigger the asset's next parabolic rise to new all-time highs.
Turbulence creates opportunities for bold traders
Getting through this period of volatility will require nerves of steel, but for experienced traders, the increasing uncertainty presents an opportunity. Platforms like PrimeXBT allow traders to benefit from strong bitcoin price swings in any direction through instruments like crypto-futures?utm_source=PR&utm_medium=PR&utm_campaign=bitcoin+plummets+20%25+post-ETF+approvals%3A+What%27s+behind+the+crash” rel=”nofollow”>crypto Futures contracts and adjustable leverage. Traders also have advanced risk management tools at their disposal to customize exposure based on personal risk tolerance.
As bitcoin emerges from its post-halving cocoon in the mid-2020s, this period can be seen as a final clean-up dip before ascending to new heights thanks to hyperscarcity and institutional adoption. Those bold enough to take calculated risks could reap enormous returns if faith in bitcoin's enduring value proposition remains strong.
Disclaimer: The article is provided for educational purposes only. It does not represent NewsBTC's views on whether to buy, sell or hold investments, and investing naturally carries risks. It is recommended that you conduct your own research before making any investment decisions. Use the information provided on this website at your own risk.
