In January, the U.S. Securities and Exchange Commission gave the green light for 11 spot bitcoin exchange-traded funds (ETFs) to commence trading on U.S. exchanges. Despite this, the move hasn’t served as the positive trigger many cryptocurrency investors had anticipated. Over the past month, Bitcoin, along with other leading cryptocurrencies, has faced challenges, marking a contrast to the significant gains seen throughout 2023.
The downturn observed in Bitcoin during January could indicate that investors are capitalizing on their profits in a reaction to the introduction of the spot ETFs, known as a sell-the-news event. Additionally, specific selling pressures related to the widely-held Grayscale Bitcoin Trust (GBTC) might also contribute to Bitcoin’s recent decline.
2024 Crypto Performance Till Date
In January, Bitcoin’s prices initially surged to new 52-week highs close to $49,000 following the SEC’s approval of spot bitcoin ETFs. However, the momentum faded in the latter half of the month, leading to a slight decline of more than 1% in Bitcoin’s value, ending the month around $42,000. Ethereum (ETH) also saw a decrease, dropping 3% to conclude January at approximately $2,245.
Out of the top 10 altcoins by market capitalization, Tron (TRX) emerged as the top performer in January, recording a 5% increase. On the other hand, Cardano (ADA) lagged behind the rest for the month, despite an impressive nearly 67% gain over the past three months.
Bitcoin recorded a notable 156% increase in 2023, marking its best yearly performance since 2020. Similarly, Ethereum’s prices rose by 91% throughout the same year.
The global cryptocurrency market’s total market capitalization reached a peak of over $2.9 trillion in November 2021 but experienced a significant downturn during the 2022 “crypto winter.” However, the market cap has since recovered, reaching $1.6 trillion as it moves into February.
Latest Sport Bitcoin ETFs
On January 10, the SEC marked a significant milestone by approving 11 spot bitcoin ETFs, a decision long awaited after numerous previous rejections. Unlike the bitcoin futures ETFs that have been available since late 2021, these new spot ETFs represent the first instance of ETFs directly investing in bitcoin itself, rather than in cryptocurrency derivative contracts.
The approved spot bitcoin ETFs, which commenced trading on January 11, are as follows:
- ARK 21Shares Bitcoin ETF (ARKB)
- Bitwise Bitcoin ETP Trust (BITB)
- Fidelity Wise Origin Bitcoin Trust (FBTC)
- Franklin Bitcoin ETF (EZBC)
- Grayscale Bitcoin Trust (GBTC)
- Hashdex Bitcoin ETF (DEFI)
- Invesco Galaxy Bitcoin ETF (BTCO)
- iShares Bitcoin Trust (IBIT)
- Valkyrie Bitcoin Fund (BRRR)
- VanEck Bitcoin Trust (HODL)
- WisdomTree Bitcoin Trust (BTCW)
The SEC’s approval of spot bitcoin ETFs, including the transition of GBTC from a closed-end fund to an ETF with nearly $29 billion in assets under management, alongside the launch of the iShares Bitcoin Trust by BlackRock, which is the largest among the new spot bitcoin ETFs with approximately $2.8 billion in AUM, marks a significant development for investors. Nigel Green, the CEO of deVere Group, views the introduction of these ETFs as a pivotal moment, opening doors for institutional investors to engage with the cryptocurrency market potentially for the first time. He suggests that this regulatory nod from the financial overseer of the world’s largest economy could be a turning point for bitcoin and the broader crypto market, likely driving prices up in the long term despite the possibility of short-term sell-offs.
According to Green, the approval of bitcoin ETFs signifies a major endorsement from institutional players, signaling a shift away from bitcoin’s early image as a speculative and unstable investment. Ben Weiss, CEO of CoinFlip, echoes this sentiment, highlighting that the approval enhances access to bitcoin but does not alter the fundamental long-term bullish perspective on bitcoin. Weiss underlines that the inherent qualities and applications of bitcoin and blockchain technology, such as facilitating cross-border payments for those underserved by conventional financial systems or enhancing transparency in intricate supply chains, affirm the crypto’s enduring relevance and transformative potential.
Spot Bitcoin ETFs and the SEC
Crypto investors may have cheered the launch of the new spot ETFs, but the SEC once again warned investors about the dangers of cryptocurrency investing.
“While we approved the listing and trading of certain spot bitcoin [exchange-traded product] shares today, we did not approve or endorse bitcoin,” SEC Chair Gary Gensler said in a statement.
“Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”
GBTC Liquidations
One dynamic that has pressured bitcoin prices since spot ETFs were approved on January 10 is the seemingly relentless bitcoin selling pressure on the Grayscale Bitcoin Trust.
The GBTC fund held more than 630,000 BTC at its peak, or about 3% of the world’s total bitcoin. However, in the first nine days following the conversion of the trust from a closed-end fund to a spot ETF, GBTC experienced more than $4 billion in outflows.
Part of GBTC’s selling pressure is coming from arbitrage traders who bought GBTC when it was trading at a steep discount to its net asset value and are now closing out their positions.
However, a number of estates from companies that went bankrupt during the 2022 crypto winter also still hold stakes in GBTC that are likely to be liquidated in 2024. Failed crypto exchange FTX sold roughly 22 million shares of the GBTC fund, or about $1 billion worth, in January 2024 following the fund’s conversion to a spot ETF.
Bitcoin Magazine estimates bankruptcy estates held roughly 15.5% of the total shares of the GBTC fund prior to its conversion. Those shares represent a total of about 80,000 BTC, and it’s unclear how many of these shares have already been liquidated or will be liquidated soon. FTX has reportedly already sold its entire GBTC stake.
Is a Spot Ethereum ETF Imminent?
Ethereum investors have been hopeful that SEC approval of spot bitcoin ETFs means approval for the first spot ethereum ETFs could be right around the corner. However, on January 25 the SEC delayed a ruling on proposed spot ethereum ETF applications from Grayscale and BlackRock.
Analysts at TD Cowen anticipate the SEC will not approve the first spot ethereum ETF until at least late 2025. The firm expects the SEC to continue to take a slow, deliberate approach to opening up Wall Street to cryptocurrency, and regulators will likely want to observe the recently launched spot bitcoin ETFs for a while before expanding to other cryptos.
In the past six months, the Grayscale Ethereum Trust (ETHE) has risen 82% in price, outpacing the 21% gain in ethereum prices in that time as investors flocked to take advantage of the fund’s discount to its NAV. The ETHE fund’s discount to NAV has shrunk from more than 40% as recently as June 2023 to around 10% today.
Sebastian Heine, head of risk and compliance at Northstake, says trading action in ETHE suggests the market appears to be pricing in an eventual conversion of the fund to a spot ETF, but the trust’s remaining discount to NAV indicates investors aren’t 100% certain if and when that conversion will occur.
“The recent reduction in the ETHE discount suggests a strategic shift among institutional investors—more investors are buying the product as opposed to selling it. The ultimate expectation for ETHE in the case of an ETH ETF approval is that the ETHE investment fund will be converted to a spot ETH ETF, similar to what we have seen with the Grayscale Bitcoin Trust (GBTC) product,” Heine says.
