Bitcoin experienced a significant downturn in January, contradicting optimistic expectations following the endorsement of Bitcoin Spot ETFs in the United States. Despite the positive reception by the crypto industry, Bitcoin recorded its worst performance in roughly a month.
The launch of new US spot exchange-traded funds for Bitcoin generated initial excitement, pushing the asset above $49,000. However, a sudden decline followed, and Bitcoin has been trading around and below the $43,000 support level. The asset currently stands at approximately $39,000, its lowest level this month and down $10,000 from its January high.
The recent downturn has been attributed to increased market volatility and adverse macro conditions, marked by rising interest rates and a strengthening dollar. The US Securities and Exchange Commission’s approval of eleven spot BTC ETFs two weeks ago initially fueled positive sentiment, but Bitcoin failed to sustain its bullish momentum.
In the past 24 hours, 126,807 liquidations occurred, totaling $332.83 million, with the largest single liquidation on Bybit valued at $5 million. Additionally, investors sold over $2 billion worth of the Grayscale Bitcoin Trust (GBTC) since its conversion into an exchange-traded fund earlier this month.
The negative trend in Bitcoin’s price is further reflected in the mass unwinding of bullish perpetual futures, leading to negative basis and sub-zero funding rates. Negative funding rates indicate perpetuals trading at a discount to the underlying asset’s price, signaling seller dominance.
Bitcoin ETFs were anticipated to encourage wider adoption by institutional and retail investors, following last year’s remarkable 160% increase in the cryptocurrency’s value. However, since the beginning of the year, Bitcoin has faced challenges and lagged behind traditional financial markets.
In response to the approval of spot Bitcoin ETFs, traditional financial firms, including Invesco and WisdomTree, have significantly reduced fees on European Bitcoin products. This move aims to attract inflows as an unprecedented number of new exchange-traded funds become available to US investors.
While the US Securities and Exchange Commission approved spot Bitcoin ETFs from BlackRock, Fidelity, and Invesco, the market is witnessing a surge in supply, leading to a price correction. The reduced fees from multiple providers reflect the ongoing efforts to find a new balance between supply and demand in the evolving landscape of cryptocurrency investments.