Major cryptocurrencies were on a tear at the end of last year, driven higher by anticipation that US regulators would approve bitcoin exchange-traded funds, broadening the pool of potential investors.
Once those funds received the go-ahead, bitcoin fell. What gives?
But the cryptocurrency declined after the favorable SEC decision duly came on January 10. And bitcoin edged below $40,000 earlier this week for the first time since December.
The price of the cryptocurrency was trading at roughly $39,519 a coin as of 4 pm ET on Wednesday.
So, why is the price of bitcoin falling, even after investors got what they wanted? Part of the reason is likely a “buy the rumor, sell the news” mentality, according to Antoni Trenchev, co-founder of crypto lender Nexo. That’s the idea that the price of an asset often rises in anticipation of an announcement and then falls as investors take profits once the news actually comes out.
Interestingly, bitcoin ETF activity actually shows net buying.
Investors have pulled about $4.4 billion from the Grayscale Bitcoin Trust since it was converted to an ETF on January 11, according to Coinshares data through Wednesday. Greyscale’s fund is the largest bitcoin ETF, holding roughly $20 billion in assets.
But those flows have been offset by about $5.3 billion poured into nine other spot bitcoin ETFs.
ETFs hold just a small portion of the bitcoin that’s traded, says Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. That means “the call is coming from inside the house. Someone who pre-owned the crypto is doing the selling,” he said.
Bitcoin has made its way higher over the last year since plummeting to below $17,000 in late 2022, after cryptocurrency exchange FTX filed for bankruptcy and set off a firestorm in crypto trading. Still, it remains well below its record high of roughly $69,000 reached in November 2021.
“We’re used to this kind of volatility in the space. What matters now is what’s coming next that could generate excitement around cryptos and deliver further gains,” wrote Craig Erlam, senior market analyst at OANDA, in a note on Tuesday.
