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Bitcoin’s unsteady feet  stir concerns amongst investors and analysts. 

By Solomon Victor

Bitcoin (BTC) has experienced a 9% drop in the past week, causing reactions from investors and analysts. This recent drop—although picking up again— is tied to a set of occurrences that involved major players in the crypto market, including Grayscale, FTX, and Coinbase.

Grayscale’s GBTC sell-offs trigger ripple effects.

The price drop of BTC by 9% in the past week is largely attributed to daily outflows from Grayscale’s spot Bitcoin Exchange Traded Fund (ETF), amounting to more than $500 million. The exit of over $2.8 billion from GBTC was catalyzed by the United States Security and Exchange Commission’s (SEC) approval of the ETFs that track spot BTC prices.

Notably, FTX, under bankruptcy, sold millions of GBTC shares for $1 billion, further amplifying the impact.

Grayscale, responding to the outflows, liquidated 52,227 BTC, valued at $2.2 billion, through Coinbase Prime accounts. The interconnectedness of these events unveils the delicate balance within the crypto ecosystem.

FTX, which has been mired in bankruptcy proceedings, not only traded GBTC shares but its subsidiary hedge fund, Alameda Research, also lost a lawsuit against Grayscale and Digital Currency Group. The lawsuit aimed at unsealing $9 billion adds a legal twist to the development.

Read also: Is the bankrupt crypto exchange FTX going to relaunch?

Growing Popularity of Spot Bitcoin ETFs

Meanwhile, the U.S SEC acknowledging Nasdaq’s request for spot BTC ETF options introduces a regulatory dimension. 

The preference for spot Bitcoin ETFs over futures-based options is evident in the significant success of 11 spot Bitcoin ETFs launched recently. With $14 billion in trading volume within the first week and over $1.2 billion in investments, these ETFs mark a shift in investor sentiment and contribute to the evolving landscape.

Read also: Spot Bitcoin ETFs and the Crypto Market: The Other Side of the Coin

Read also: Historic U.S SEC approval paves way for spot Bitcoin ETFs trading

BTC Price Outlook

With BTC experiencing a 20% decline since reaching an intra-day high of $48,969 during the initiation of spot ETF trading, the cryptocurrency faces a critical juncture. 

The possibility of a weekly close below the $40,000 level heightens the potential for BTC to test the psychological threshold of $35,000. On the on-chain front, the drop in daily active addresses from 969,000 to 594,000 between January 22 and 23, indicating a 38% reduction in unique addresses in use, adds a concerning layer. 

Concurrently, the decline in whale transactions above $100,000 and notable peaks in exchange inflows suggest an increased inclination among BTC holders to capitalize on profits. This underscores the prevailing bearish sentiment in the market. 

BTC will experience price correction, say analysts.

Bitfinex analysts express concerns about a potential further price correction due to short-term holders reacting acutely to market fluctuations. With critical support levels identified at $38,000 and $36,000, the market faces uncertainties as these holders realize losses.

Rume Ophi, a crypto market analyst, had exercised caution before the ETF surge. He notes the classic market phenomenon of “buy the rumor, sell the news,” suggesting a possible decline upon the formal announcement of the Bitcoin ETF.

Crypto analyst Sanusi Saheed introduces the concept of Fair Value Gaps (FVG), suggesting potential opportunities as BTC faces price drops. Saheed anticipates BTC touching $26k, emphasizing the importance of recognizing FVG in trading strategies.

BTC is only warming up for a bull run, says Bitcoin optimist.

But amidst BTC’s current shaky feet, Bitcoin optimist, Josh Vazzzzz, believes that the situation is only temporary. Referring to the $10billion volume in the first 3 days triggered by the recently approved spot Bitcoin ETFs in the U.S. Contextually, there were 500 ETFs launched in 2023 which, combined till date, did $450m in volume. Blackrock IBIT alone already beat this volume significantly, despite the massive selling GBTC is witnessing. To buttress his point, Vazzzzz illustrates with numbers: There is only 1.8m BTC on exchanges and not all of it is for sale. Assuming about 1.5million is for sale and you divide that 1.5million by daily purchases of say 5000 BTC a day from these ETFs in 300 open market days, all the supply for sale on exchanges will be gone! Imagine what that does to prices!? If no BTC is for sale! “They will have to seduce people into selling their BTC at much higher prices”, he said.

Although Vazzzzz acknowledges the decrease in BTC price, he believes that this decrease is short-term.  Vazzzzz believes that BTC is in a bull run, and with Halving around the corner, he predicts there could be an increase of BTC value following historical patterns.

According to Vazzzzz, while there were significant outflows evident, buys for ETFs still exceeded sells. He recognizes current selling pressure but notes that as soon as it fades, Bitcoin’s price could skyrocket above $50k after the Halving in April.

Read also: Is the next bitcoin halving in 2024 going to be the magic wand for a bullish run?

Read also: Bitcoin faces correction after spot ETF surge

Credit: Solomon Victor is a Technical Analyst who is also knowledgeable about various aspects of blockchain and cryptocurrency.

Image source: Vecteezy