Why Did The Bitcoin Price Drop Below $41k?

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Bitcoin (BTC) recently saw a significant 4.5% decline, hitting a one-month low at $40,800 on Thursday. This drop aligns with the broader trend observed in the CoinDesk 20 Index, indicating a 4.6% decline over the last 24 hours.

Impact Approved Bitcoin ETFs

Following the approval of the new spot Bitcoin ETFs on January 11, an initial spark led to a brief surge in Bitcoin’s value. However, this enthusiasm quickly waned, resulting in a notable 13% decrease in the cryptocurrency’s price. 

While there have been substantial inflows into the new spot Bitcoin ETFs, there have also been significant outflows, especially from Grayscale’s GBTC. This contrasting movement of funds adds a layer of complexity to the overall market scenario.

As per the recent data, the new spot ETF issuers collectively acquired over 68,000 bitcoins during their first week of trading. On the flip side, GBTC experienced an outflow of about 40,000 bitcoins during the same period. This resulted in a net addition of approximately 28,000 bitcoins to Bitcoin ETFs.

Global Context and Investor Trends

A prominent Analyst Vetle Lunde from K33 Research shed light on the global context, noting that even before U.S. regulatory approval, various spot Bitcoin products were already trading worldwide. Right now, there are more than 864,000 bitcoins in these global investments, and the new U.S. investments are not that much compared to the rest of the world.

Besides people leaving Grayscale’s GBTC, others in Canada and Europe also took money out of their Bitcoin investments last week. They either made some profit or chose to invest in the new U.S. investments because they were cheaper.

Adding intricacy to the situation is the ProShares Bitcoin Strategy ETF (BITO), which, despite holding no Bitcoin, manages over $2 billion in assets under management. Even though it doesn’t own bitcoins, it affects much of the Bitcoin market. Lunde said that these kinds of investments now make up 48% of the total interest in Bitcoin.

What Could Happen Next

As people take their money out of investments like BITO, there might be more pressure to sell certain types related to Bitcoin. This could lead to Bitcoin’s price dropping more in the short term, creating challenges for the cryptocurrency.