Cryptocurrency prices have fallen this week, with bitcoin falling below $43,000 and the overall cryptocurrency market capitalization falling below $1.7 trillion. Several key factors explain this cooldown following the rally driven by spot bitcoin ETFs in early January.
TLDR
- Enthusiasm around bitcoin ETF spot approval fading as markets cool and consolidate
- Uncertainty persists around US crypto regulations, with no clear outcome yet in Coinbase vs SEC case
- Bitcoin and cryptocurrency prices face selling pressure due to strengthening dollar and rising US Treasury yields.
- $137 Million in Crypto Liquidated in Last 24 Hours as Bulls Shocked by Drop
- GBTC holders transferring bitcoins, possibly closing positions after ETF conversion
First, the excitement around the long-awaited US bitcoin spot exchange-traded fund (ETF) approvals is evaporating. Huge first-day trading volumes for these ETFs had cryptocurrency bulls celebrating, but sustained bullish momentum has failed to materialize.
Investor psychology has shifted from initial elation over regulatory approval to now questioning whether volumes are actually substantial enough to justify further significant gains in the price of bitcoin. As the market takes a breather, volumes and volatility have decreased across most crypto assets.
Traders are also becoming cautious amid uncertain and complex regulatory headwinds gathering in the U.S. A court case in New York between the SEC and Coinbase The question of whether cryptoassets are securities remains unresolved, despite both sides finding common ground that bitcoin and ether are more akin to commodities.
The lack of clear crypto regulation from Congress means unfinished business and lingering doubts hindering adoption by risk-averse institutions. Until clear guardrails emerge in areas such as securities laws, custody requirements, and tax policies, traditional funds face obstacles to entering crypto markets.
Beyond regulatory uncertainty, bearish technical factors are also weighing. The US dollar is strengthening against other major fiat currencies, driven by elevated retail sales data and rising Treasury yields. A higher dollar makes bitcoin and other cryptocurrencies less attractive to foreign buyers, putting selling pressure on them.
Similarly, over $137 million in bullish crypto leveraged positions were liquidated across all exchanges in the last day. Surprised by abrupt price declines, these liquidating longs perpetuate bearish momentum through cascading margin calls and involuntary sales.
Specifically on the bitcoin front, Additional pain comes from capital outflows emerging from the Grayscale Bitcoin Trust (GBTC) after its long-awaited conversion to a spot ETF structure. The trust no longer operates on a closed basis, meaning investors can now exit positions and withdraw bitcoins.
Data shows that GBTC holders have transferred more than 8,700 bitcoins worth $380 million in recent days to custody platforms such as Coinbase Prime. This likely represents investors closing GBTC to reallocate funds to cheaper spot ETF options now available.
