Since the introduction of the Bitcoin ETF, the cryptocurrency market has fallen from $1.82 trillion to $1.66 trillion. As Bitcoin’s dominance fell below 50%, coins such as Ethereum rose. Bitcoin price has hovered around $42,500, with traders eyeing purchases below $40,000.
Experts say the immediate impact of the Bitcoin ETF approval is mostly over and they expect the market to stabilize further. Despite the approval, Bitcoin’s value unexpectedly fell 17.7% last week, reaching $40,500 from nearly $49,000 on January 11, despite the entry of major players such as BlackRock.
Factors driving Bitcoin’s decline
To help understand this sudden downturn, market intelligence firm IntoTheBlock Analyzed On-chain data. They observed sustained Bitcoin inflows into centralized exchanges (CEXs) over a six-week period, with net deposits reaching nearly $2 billion. In general, continued deposits on an exchange raise questions about who is sending sell signals and applying selling pressure.
A key insight is the record average holding time for traded Bitcoin, indicating that long-held BTC tokens are in circulation. According to the study, this is linked to an outflow of individuals leaving the Grayscale Bitcoin Trust (GBTC).
However, the analysis also highlighted trends in Bitcoin addresses. Those holding more than 1,000 BTC increased their wallets, while those holding less than 1,000 BTC decreased their wallets in January. The balance of addresses holding Bitcoin has decreased for 1 to 12 months. Long-term holders have slightly reduced their overall Bitcoin holdings, while short-term holders have increased their positions since October 2023.
Despite concerns about the shift from long-term to short-term holders, IntoTheBlock assert What’s different about this scenario is that it differs from previous market highs. Factors such as lower trading volumes compared to previous bull markets and limited declines in long-term holders’ balances have led the platform to suggest that Bitcoin may face a temporary setback rather than entering a bearish trend. They expect the asset to return to bullish territory.
After short-term profit taking, the real challenge
Another factor adding to Bitcoin’s problems is the short-term impact of spot Bitcoin ETFs. This appears to be fading, as evidenced by futures and options data. Traders find the funding rate attractive, suggesting buying activity is imminent. Over the past four hours, both BTC futures and options open interest (OI) have been on the rise.
Total BTC futures open interest, which covers various exchanges including CME, Binance, and Coinbase, is rebounding, increasing 0.35% to $18.31 billion. This signals a potential recovery in market interest and activity.
Top analyst Michael van de Poppe said not to be negative about the decline in Bitcoin prices. Instead, he suggests buying when prices are falling and holding for the long term.