Why did the price of BTC fall after the approval of Bitcoin ETF? Analysis of the reasons for the decline in BTC prices

php Editor Banana conducted an in-depth analysis on why BTC fell so much after the adoption of the Bitcoin ETF. Although the passage of the Bitcoin ETF is seen as a major benefit to the cryptocurrency market, the decline in BTC prices has caused confusion. After investigation and research, we found several possible reasons. First, the adoption of ETFs may have triggered profit-taking behavior among investors, leading to massive selling. Secondly, some market participants are worried that the adoption of ETF will trigger more regulatory and policy risks, further exacerbating the selling sentiment. In addition, technical adjustments and changes in market sentiment may also have an impact on BTC prices. To sum up, the reasons for the decline of BTC after the adoption of Bitcoin ETF are multi-faceted, and various factors need to be considered comprehensively to draw a more accurate conclusion.

So, what is the reason for Bitcoin’s decline? Does the drop in BTC prices indicate that ETF news is actually not as good as once thought? In this article, we will analyze them one by one.

Bitcoin BTC price fell below $40,000

The U.S. Securities and Exchange Commission (SEC) recently approved 11 Bitcoin spot ETFs, this news Make the market very excited. Many cryptocurrency enthusiasts predict that this year will see a bull market similar to 2021.

In the days following the SEC approval, more than $2 billion poured into Bitcoin ETFs, and BTC prices surged to a multi-year high of $49,102. However, the cryptocurrency then quickly declined.

Bitcoin (BTC) prices have since fallen below $40,000, hitting as low as $39,431, the lowest price since early December. As of January 23, Taiwan time, the price of Bitcoin has rebounded, trading at $40,050, down 2.93% in the past 24 hours.

What is the reason for the price drop of BTC?

Next, we will analyze three reasons why Bitcoin prices have fallen.

1. Macroeconomics

Trading volumes across the cryptocurrency market have taken a hit due to a variety of factors including volatility, earnings season, and macroeconomic developments.

A stronger U.S. dollar has put selling pressure on Bitcoin. The U.S. Dollar Index (DXY) traded at 103.50 on January 18, above the 100-day exponential moving average (EMA), indicating that the strength of the U.S. dollar is making investors more inclined to move funds from Bitcoin to the U.S. dollar. In this case, Bitcoin is facing selling pressure, which may cause the price to fall.

This strong momentum is driven by increased demand and rising U.S. Treasury yields. U.S. retail sales rose more than expected in the final month of 2023. U.S. Treasury yields also rose sharply, suggesting the market is adjusting its bets on the Federal Reserve's roadmap for rate cuts.

In addition, a strengthening U.S. economy, supported by the latest data, is changing the market's dovish bets, although the possibility of interest rate cuts in March and May still hovers around 50 basis points.

This adds to the strength of the U.S. dollar, which in turn puts pressure on cryptocurrency prices.

2.GBTC’s activities

The Bitcoin spot ETF was traded for the first time on January 12. On the first trading day, the ETF’s trading volume reached 4.66 billion US dollars, setting a traditional All-time highs for the financial sector, but this is enough to prove that BTC prices continue to rise as widely expected.

According to data from blockchain analysis platform Arkham Intelligence, Grayscale Bitcoin Trust (GBTC) transferred 8,730 BTC (worth more than $376 million) to Coinbase Prime deposit addresses on January 16. These transfers mean that GBTC holders are choosing to close some of their positions.

For retail traders, current ETF inflows are not considered compelling, with the general consensus being that the market needs time to calm down and consolidate.

3. "Selling News" Event

Cryptocurrency prices are much more volatile than stocks, but their overall trends are often closely related to the stock market. It makes sense, then, that the cryptocurrency market shares many of the same characteristics as stocks. One of them is that if a stock performs strongly during earnings season and beats expectations, the stock price may still lose value.

This counterintuitive phenomenon is caused by "news selling," the behavior of shareholders taking profits after good news comes out. When there are more sellers than potential investors, a large number of shares returning to the market may cause changes in supply and demand, causing the stock price to fall.

This helps explain why Bitcoin suffers from its own success.

Julio Moreno, director of research at CryptoQuant, does not believe that the decline in Bitcoin prices was caused by the selling of Bitcoin by GBTC, a subsidiary of Grayscale. He attributed the fluctuations in Bitcoin prices to profit-taking after the surge in Bitcoin prices last year. Bitcoin holders (short-term traders and whales) are selling, noting that the ETF approval may just be a “sell-off news” event.

According to on-chain analytics firm Glassnode, the Bitcoin price drop may have been driven by a combination of derivatives leverage and spot profit-taking.

However, multiple indicators in the on-chain and derivatives space suggest that a significant portion of Bitcoin investors do view the ETF approval as a selling news event.

Glassnode said that while there are other key drivers behind the medium-term volatility, open interest (OI) has risen significantly in both futures and options markets since mid-October.

Open interest in both markets remains near multi-year highs, indicating leverage is rising and becoming a more dominant force in the market.

Does Bitcoin’s decline indicate that ETFs aren’t all that good?

So, does the drop in BTC prices indicate that the ETF news is actually not as good as once thought?

it's not true.

Experts still expect that Bitcoin spot funds will open the market to a large number of new investors and push prices back to all-time highs. They view these losses as just a minor setback in a bullish picture; if anything, potential Bitcoin investors may take the opportunity to buy Bitcoin at a "discount."

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