Bitcoin has plummeted below the $40,000 mark for the first time this year, marking a 16% loss over the past two weeks. The decline is attributed to investors leveraging the recent launch of Bitcoin exchange-traded funds (ETFs) to capitalize on profits, causing the sentiment surrounding the leading cryptocurrency to dip.
The cryptocurrency, which experienced a significant rally in late 2023, fueled by speculations that mainstream stock market funds tracking Bitcoin would attract new investors, has faced a downturn. The launch of 10 new ETFs on January 11, approved by the US Securities and Exchange Commission, was expected to invigorate the market. However, the results have fallen short of expectations, with only $4.7 billion collectively pulled into these funds by the end of Tuesday.
On the day of the ETF launch, Bitcoin was trading at $46,100, but it has steadily declined since then, sinking as much as 3% on Tuesday to dip below $39,000 for the first time since early December. Notably, a significant amount of capital, approximately $3.4 billion, has exited Grayscale’s fund, the world’s largest Bitcoin investment vehicle, since its conversion to an ETF alongside the new launches.
Analysts believe that a considerable portion of the inflow into the 10 new funds may be attributed to investors moving from Grayscale to other ETFs, as Grayscale historically charges higher fees than its competitors. Douglas Comin, a senior crypto options trader at XBTO, noted, “What people didn’t realize is that you would have an enormous exit from Grayscale. These ETFs were super highly anticipated, and now we see that [a Bitcoin bull run] is not going to materialize, at least not as quickly as the market wanted.”
The conversion of Grayscale’s 10-year-old Bitcoin trust has allowed investors, who were previously only able to sell shares at a discount, to exit their holdings altogether. This move has led to a reduction in the fund’s overall size from $28 billion earlier this month to $22 billion by the close of trading on Monday.
Varun Paul, Director of Market Infrastructure at blockchain platform Fireblocks, commented on the situation, stating, “ETFs bring liquidity, and while they enable people to come in, they also enable people to exit. Some investors are exiting positions after buying Bitcoin a long time ago, so they’re in the money.”
Despite Grayscale reducing its management fee from 2% to 1.5% in preparation for the ETF launch, it remains considerably more expensive than competitors. In contrast, BlackRock charges only 0.12%, with that figure set to rise to 0.25% if its ETF attracts $5 billion in assets under management. As of now, BlackRock has drawn in $1.7 billion.
Information for this briefing was found via Financial Times and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
