Asset Manager Explains Factors Behind Bitcoin Price Drop Below $42,000 Despite ETF Approval

The approval of spot exchange-traded funds (ETFs) by the Securities and Exchange Commission in the United States has coincided with significant downward pressure on the Bitcoin price, which fell below $42,000 on Friday, January 12, marking a 7% decline within the past 24 hours.

Investors and cryptocurrency enthusiasts have expressed concern over the underwhelming performance of Bitcoin since the commencement of BTC spot ETF trading. Anthony Scaramucci, the founder of SkyBridge Capital, shared insights into the potential reasons behind the flagship cryptocurrency’s struggle following this positive development.

Reasons Behind the Decline:

In a recent Bloomberg interview, Scaramucci discussed the factors contributing to the bearish pressure on Bitcoin’s price after the introduction of BTC ETFs in the United States. According to the hedge fund founder, the recent price decline of BTC is partially attributed to the sale of shares from Grayscale Bitcoin Trust (GBTC), recently converted to a spot exchange-traded fund. Shareholders of GBTC are reportedly selling to realize losses and shifting towards lower-fee alternatives. On Thursday, GBTC recorded approximately $2.3 billion in trading volume, marking the largest first-day turnover for an ETF.

Additionally, Scaramucci mentioned that the bankruptcy estate of the now-defunct FTX exchange has been selling Bitcoin over the past few days. He explained during the interview:

“The second thing we are seeing is the bankruptcy estate of FTX is unloading into the ETF announcement.”

Anticipated Turnaround:

Despite the current challenges, Scaramucci is optimistic about a reversal in the Bitcoin price in the next few trading days. He anticipates the selling pressure to subside, stating:

“There is a heavy volume of selling in Bitcoin right now. I do expect the supply overhang to be done in the next six to eight trading days.”

Bitcoin’s Trading Volume and Open Interest:

Despite the price drop, Bitcoin has experienced heightened interest from traders, with its trading volume reaching its highest level since FTX’s collapse in November 2022, according to a Santiment report. Moreover, Bitcoin’s open interest rates for Binance perpetual contracts surged by over $426 million on Friday, reaching the highest level on the world’s largest crypto trading platform since January 1, 2024, as per Santiment data.

In conclusion, while positive developments in Bitcoin’s trading volume and open interest occurred after the ETF approval, current market uncertainties may suggest the potential for a price reversal in the near future.

Despite the recent drop in Bitcoin’s price, it’s important to note the significant increase in trading volume and open interest, indicating sustained interest and engagement from traders. The surge in trading volume to its highest level since the collapse of FTX in November 2022 suggests ongoing market activity and participation.

While Anthony Scaramucci points to specific factors like Grayscale Bitcoin Trust share sales and the FTX bankruptcy estate’s Bitcoin liquidation as contributors to the recent downturn, he remains optimistic about a potential turnaround in the next six to eight trading days. This sentiment is grounded in the expectation that the current selling pressure, driven by various factors, will eventually subside.

Bitcoin’s open interest rates for Binance perpetual contracts reaching the highest level since January 1, 2024, further underscores the sustained interest in Bitcoin trading. Despite the short-term challenges, the market dynamics and increased engagement signal potential resilience and recovery in the near future.

In conclusion, the intersection of regulatory developments, market dynamics, and investor behavior is creating a complex environment for Bitcoin. As the market navigates these dynamics, traders and investors will keenly observe how these factors shape Bitcoin’s price movement in the coming days and weeks.