Bitcoin has fallen below the critical threshold of $40,000, marking a significant drop in the cryptocurrency’s value.
Bitcoin was trading at $39,640 at the time of writing, down 18% from its peak of $49,000 earlier in January.
The drop to around $40,000, Bitcoin’s lowest level since mid-December of the previous year, was driven by an ongoing sell-off amid a range of macroeconomic and market-specific factors.
Headwind from the dollar
A major contributor to Bitcoin’s recent woes has been the unexpectedly robust US economic data, which has led to a muted outlook for interest rate cuts by the Federal Reserve.
This situation has strengthened US bond yields and the US Dollar Index (DXY), creating significant headwinds for cryptocurrencies in general.
The US interest rate futures market still estimates a near 50% chance of a 25 basis point rate cut in March, despite recent data and Federal Reserve policymakers suggesting otherwise. This dynamic poses potential macroeconomic challenges for Bitcoin.
The adoption of several spot Bitcoin ETFs in the US has also played a key role in the volatility. While these ETFs initially generated significant capital inflows, they also created a sell-the-news reaction, adding to the bearish momentum.
GBTC outflow
Grayscale’s Bitcoin Trust (GBTC) in particular saw significant outflows, with 52,800 BTC sold since converting to a spot ETF, reflecting both a shift towards new investment products and profit-taking activity.
According to recent reports, FTX has sold $1 billion worth of GBTC shares since converting to an ETF, making up a significant portion of the total outflows. The defunct exchange has sold off almost all of its shares as of January 22, which could lead to a reduction in recent recent selling pressure.
Despite the heavy sell-off, the nine newly launched ETFs collected more Bitcoin than Grayscale sold during the same period, as their assets under management reached $4.1 billion within six days of trading.
The ‘Newborn Nine’ had purchased 95,000 BTC on January 20, led by BlackRock and Fidelity ETFs. The two represent more than 50% of the company’s combined $4.1 billion in assets under management.
Research from CryptoSlate found that selling pressure was further increased as short-term holders and traders sold their positions after the ETFs were approved – confirming a “buy the rumor, sell the news” event. Furthermore, after twelve months of gains, whales have secured profits on their assets.