Bitcoin faced its weakest performance in a month as enthusiasm waned over new U.S. exchange-traded funds (ETFs) for the leading digital asset.
On Monday, the token dropped by 1.9 percent before recovering slightly to reach $42,239. It has seen a four-day decline, marking the most prolonged slump since mid-December. Ether, BNB and Solana showed varying performance as smaller crypto coins faced challenges in gaining momentum.
Following the SEC’s approval on January 11, 11 spot Bitcoin ETFs commenced trading on the very same day. Among the issuers that secured approval are prominent names like BlackRock and Fidelity Investments.
Following the mass ETF launch, Bitcoin briefly surged to a two-year high above $49,000. However, it subsequently started to retreat.
Speculative downturn
Market analyst Tony Sycamore from IG Australia has noted the recent spike and subsequent downturn in Bitcoin. He attributed it to a “buy-the-rumor, sell-the-fact reaction.” Based on signals from Bitcoin’s chart patterns, Sycamore also predicted a potential decline from $38,000 to $40,000.
Advocates of Bitcoin as a store of value see the introduction of the first U.S. spot ETFs as a positive development as they provide easier access to the token for investors. However, skeptics are citing the 2022 crypto crash and subsequent bankruptcies to urge caution despite a partial market recovery last year.
Bloomberg Intelligence’s Eric Balchunas reported that the new U.S. spot funds attracted a net inflow of $819 million in their initial two days of trading. BlackRock’s iShares Bitcoin Trust received $500 million, and Fidelity Wise Origin Bitcoin Fund secured $422 million.
The largest fund, Grayscale Bitcoin Trust ($26 billion), experienced $579 million in outflows after transitioning into an ETF last week. Balchunas suggests that speculators capitalizing on profit-taking, given the narrowed discount, might contribute to Bitcoin’s recent weakness. The same thing is also outlined by Noelle Acheson of the Crypto Is Macro Now newsletter.
“It’s very unlikely that all the outflows from the Grayscale Bitcoin Trust went back into Bitcoin,” Acheson said. “The new funds are likely to continue to see strong inflows over the next week, as money on the sidelines is funneled in, and as the marketing machines get going.”
According to Acheson, this could be compensated in the short term by additional outflows as speculative holdings are liquidated.
SEC boosts ETH instead
In contrast with Bitcoin’s weak performance, the SEC’s Bitcoin ETF approval has had a much more positive impact on Ethereum (ETH). The second-largest cryptocurrency surged by nine percent in the past 24 hours, reaching a 20-month high at $2,585.
This disparity signals a market sentiment that ETFs directly invested in Ethereum may be the next to gain approval from the SEC, with the current token value yet to reflect this optimistic outlook fully.
In contrast, Bitcoin had already experienced a prolonged surge in anticipation of the ETF approval, leading to speculation that the current rally may be approaching exhaustion.
Richard Galvin, co-founder of Sydney-based crypto asset manager DACM, highlighted Ethereum’s favorable attributes. Galvin named size, liquidity and existing CME futures as reasons why Ethereum can be a viable candidate for a physical U.S. ETF, following the successful Bitcoin model.
Ethereum’s unique role as the token of a commercially crucial blockchain, where investors earn rewards through staking, adds further appeal to potential ETFs. While technically complex, ETFs could leverage ether staking, currently yielding an annual equivalent of 4.3 percent, enhancing the attractiveness of such products for investors, according to Galvin.