Bitcoin's Bizarre Fall Post-ETF Approval: Unpacking Bitcoin's Latest Price Plunge!

The world of cryptocurrency, particularly Bitcoin, witnessed an intriguing turn of events at the end of last year.

by Faruk Imamovic
Bitcoin's Bizarre Fall Post-ETF Approval: Unpacking Bitcoin's Latest Price Plunge!
© Getty Images/Chris McGrath

The world of cryptocurrency, particularly Bitcoin, witnessed an intriguing turn of events at the end of last year. A notable surge in major cryptocurrencies was primarily driven by the market's anticipation of U.S. regulators approving Bitcoin exchange-traded funds (ETFs).

These ETFs were expected to widen the investor base significantly. However, the aftermath of this highly anticipated decision by the U.S. Securities and Exchange Commission (SEC) led to an unforeseen decline in Bitcoin's value.

In the first week of January, Bitcoin reached a high of over $47,000, marking its strongest performance since April 2022. This peak was largely attributed to investor expectations surrounding the SEC's approval of the first-ever ETFs tracking Bitcoin's spot price.

Contrary to expectations, Bitcoin's value plummeted following the SEC's positive decision on January 10, dropping below $40,000 for the first time in a month. The price of Bitcoin was recorded at approximately $39,519 per coin by 4 pm ET on a Wednesday, signaling a significant downturn.

Antoni Trenchev, co-founder of crypto lender Nexo, explains this paradoxical situation with the "buy the rumor, sell the news" phenomenon. This investment strategy suggests that asset prices often escalate in anticipation of certain news or events but tend to fall once the actual news is released, as investors begin to realize profits.

Divergent Trends in the World of Bitcoin ETFs

Despite the overall decrease in Bitcoin's value, ETFs present a more complex picture. The Grayscale Bitcoin Trust, which was converted into an ETF on January 11, experienced a withdrawal of about $4.4 billion, according to Coinshares.

This ETF is the largest of its kind, holding approximately $20 billion in assets. In contrast, other Bitcoin ETFs witnessed a cumulative inflow of around $5.3 billion. Eric Balchunas, a senior ETF analyst at Bloomberg Intelligence, points out that ETFs represent only a minor segment of the total Bitcoin traded.

He suggests that the selling pressure is likely originating from existing cryptocurrency holders, rather than new investors. Bitcoin has shown resilience, recovering from its late 2022 low of below $17,000, which was a fallout of the FTX bankruptcy and the subsequent instability in the crypto market.

However, it still lags behind its all-time high of roughly $69,000 reached in November 2021. Craig Erlam, a senior market analyst at OANDA, reflects on the volatile nature of the cryptocurrency market, indicating that future developments could potentially reinvigorate interest and drive gains in cryptocurrencies.

Bitcoin Spot ETFs Launch© Getty Images/Stephanie Keith

The Changing Landscape of the US Economy

A Glimmer of Hope in Economic Recovery

The US economy appears to be on the cusp of a transformation, offering a glimmer of hope to its citizens.

The protracted economic downturn, fueled by relentless inflation, a challenging housing market, and steep child care costs, is showing signs of easing. A decline in inflation from its four-decade peak in 2022, a rejuvenated stock market, easing mortgage rates, and a robust job market with near-historic low unemployment rates are indicators of this positive shift.

However, this economic resurgence is not without its uncertainties. External factors such as international conflicts could potentially increase oil prices and other consumer goods, affecting the economic landscape. Recent consumer surveys, however, reflect a shift in the American psyche, capturing an increasingly optimistic sentiment.

This change in mood is underscored by three pivotal developments: thriving 401(k) plans, surging consumer sentiment, and falling gas prices, collectively contributing to a more positive economic outlook.

The Ongoing Struggles of American Families

Despite these positive indicators, challenges persist, particularly for working parents in America.

In a significant speech set to be delivered in Chicago, Treasury Secretary Janet Yellen will address the hurdles faced by middle-class families. Yellen's speech is expected to blend the administration's achievements in economic recovery post-Covid-19 with an acknowledgment of the frustrations many Americans face due to the high cost of living.

“Our economic agenda is far from finished. There’s much more the President and I would like to do to support the middle class,” Yellen plans to say during the speech at the Economic Club of Chicago.
Yellen's agenda includes advocating for affordable child care, accessible housing, and dignified retirement for Americans.

She is also expected to highlight the expanded Child Tax Credit's impact and the need for policies that support middle-class families. The speech aims to reinforce the Biden administration's commitment to elevating the middle class, a commitment reflected in the increase in median household wealth, growth in inflation-adjusted wages, and enhanced consumer purchasing power.

“It is still too hard to be a working parent. We need to get American families access to affordable child care and other support for their children,” Yellen is set to say, according to the excerpts.
Despite these advancements, the White House's economic policies continue to face skepticism among voters.

Recent surveys, however, indicate a growing confidence in the economy, fueled by decreasing inflation and a strong job market. The University of Michigan's Consumer Sentiment Index supports this trend, showing a significant rise, the largest since the recession ended in 1991.