Bitcoin drops on the day of ETF launch! Why?

The launch of the very first Bitcoin ETFs on the US market was seen as a historic event in the crypto world. However, the price of the flagship cryptocurrency disappointed by showing a decline on the very day these famous ETFs arrived. Let’s zoom in on this unexpected drop. 

Euphoria Suddenly Chilled During the ETF Launch

The crypto community eagerly awaited the SEC’s green light, the US securities regulator, for the launch of ETFs replicating the Bitcoin price. The approval finally came on January 11, 2024, paving the way for the trading of 10 Bitcoin ETFs on the New York Stock Exchange from day one. 

Enthusiasm was so high that the price of Bitcoin quickly soared above $49,000 in the first hour of trading, flirting with the psychological threshold of $50,000. Trading volumes exploded from the open, notably for BlackRock’s ETF, whose exchanges exceeded $500 million just 60 minutes after kickoff. 

But the euphoria quickly dissipated. Within 2 hours, the price of Bitcoin plummeted below the $46,000 mark. Thus, erasing a large part of the initial gains. An unexpected turnaround that dampened the hopes of investors betting on a bullish surge.

Possible Causes of This Bitcoin Disillusion

How do we explain this sudden drop despite the promising arrival of ETFs? Several theories are circulating among market observers. 

Some mention a simple profit-taking movement after the morning’s rise, the more tempting as the symbolic barrier of $50,000 blocked the price. The conversion of the Grayscale Bitcoin Trust (GBTC) into an ETF could also have led to sales of Bitcoin (BTC).

On the other hand, the influx of newcomers such as hedge funds and market makers could have increased volatility and anticipated a classic “sell on the news” phenomenon. Finally, the market seems to have overestimated the actual bullish impact of ETFs in the short term.

Regardless, this turnaround is a reminder that Bitcoin’s adoption by traditional finance won’t happen smoothly. Between psychological resistances, profit-taking, and speculative strategies, the road remains filled with hurdles.

While the launch of the first Bitcoin ETFs was seen as a milestone towards the democratization of crypto, their first day ended in a bearish reversal. Though the innovation remains promising in the long term, this setback underscores that volatility and uncertainty still surround the crypto market.