Bitcoin Falls to Seven-Week Low as ETF Boost Fades
Bitcoin prices dropped sharply on Tuesday, reaching their lowest level in over seven weeks and breaking below key levels. The initial surge in prices following the approval of several spot exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC) appears to be losing momentum.
Bitcoin declined by 4.3% to $39,867.0 by 19:54 ET (00:54 GMT).
The cryptocurrency experienced a significant surge over the past year as speculators anticipated the approval of ETFs that directly track its price. This marked a first for U.S. markets. Bitcoin reached a near two-year high earlier this month, coinciding with the SEC’s endorsement of the spot ETFs.
However, contrary to expectations that institutional capital would drive the price even higher, bitcoin’s performance has been lackluster since the ETF approval.
The spot ETFs that were approved and listed earlier this month, including BlackRock’s iShares Bitcoin Trust, ARK 21Shares Bitcoin, and WisdomTree Bitcoin, have all experienced declines of 13% to 14% since their debut. While they had a strong first day of trading, their subsequent price performance and trading volumes have been consistently negative.
Bitcoin’s downturn can be attributed to the resilience of the U.S. dollar, as investors increasingly anticipate that the Federal Reserve will raise interest rates. Traders have reduced their bets on a rate cut in March 2024.
Expectations of a rate cut in March had driven bitcoin’s gains over the past two months. However, in a high-rate environment where bitcoin offers no yield, the cryptocurrency typically performs poorly.
Although the SEC’s approval of the spot ETFs added some regulatory credibility to the crypto industry, SEC Chairman Gary Gensler has continued to express concerns about the risks associated with crypto assets.
The crypto industry has faced significant challenges and loss of trust in recent years due to high-profile bankruptcies and regulatory crackdowns. The SEC has ongoing cases against major exchanges Coinbase and Binance, the latter of which was fined billions of dollars in late 2023 over criminal charges filed by the Department of Justice.
In contrast to bitcoin’s recent decline, traditional financial markets, particularly U.S. equities, have rallied strongly. The S&P 500 and the Nasdaq closed at record highs on Monday, boosted primarily by a surge in technology stocks ahead of major earnings announcements this week.
Analyst comment
Negative news. Bitcoin falling to a seven-week low and losing momentum after the approval of ETFs indicates a lackluster performance. Institutional capital has not driven prices higher as expected. The decline can be attributed to the strength of the U.S. dollar and anticipation of interest rate hikes. While the approval added regulatory credibility to the crypto industry, SEC Chairman Gensler continues to express concerns. Traditional financial markets have rallied, particularly U.S. equities. Market outlook: Bitcoin may continue to face downward pressure as investor interest dwindles and traditional markets surge.
