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Bitcoin ETF shares have appeared on exchanges. How has this affected cryptocurrencies?

The US Securities and Exchange Commission (SEC) approved the launch of 11 exchange-traded funds (ETFs) investing directly in Bitcoin, and these funds went public the very next day. On the first day of the launch of trading in shares of spot Bitcoin ETFs, about 700 thousand transactions were made, and the trading volume reached $4.33 billion. Our expert analyzed the first days of trading in shares of new Bitcoin exchange-traded funds and spoke about the impact on cryptocurrency quotes.

Various exchange traded funds (ETFs), including gold, have trillions of dollars in assets under management. It is generally accepted in the cryptocurrency community that even a small percentage of this capital can have an impact on the global crypto market in the future. After the approval of spot Bitcoin ETFs, the demand for cryptocurrency should, in theory, increase: when buying shares of funds, it is implied the supply of Bitcoin as an underlying asset, that is, its direct purchase on the market, affecting the rate. Let’s see if this is true. The Bitcoin (BTC) price remained volatile throughout the trading session on January 11. At the moment, the price of the first cryptocurrency approached $49 thousand for the first time since December 2021, but then significantly corrected. At 18:40 Hong Kong time, BTC was trading at $44.5 thousand. On Sunday, January 14, Bitcoin (BTC) was trading at $42.8 thousand, its price had fallen by almost 3% since the end of the previous week. The price of the second largest cryptocurrency, Ethereum (ETH), on the contrary, is growing amid speculation around the approval of spot ETFs for it, which is expected later this year. The world’s largest asset manager, BlackRock, filed an application to register such a fund in November 2023, and the SEC is expected to review it by May. Ether is trading above $2,600, with a weekly growth of more than 15%. The coin is growing not only against the dollar, but also against Bitcoin, which may signal a shift in investor interest towards ETH.

Thus, it is clear that Bitcoin has strengthened its reputation as an asset worthy of investment. Spot Bitcoin ETFs open up access to cryptocurrencies to a wider audience that has not previously interacted directly with the market. After approval, several Bitcoin ETFs were launched for sale on the NASDAQ, NYSE and CBOE exchanges. On the very first day of the premarket, trading volume exceeded $1 billion, which added optimism to trading participants. At the end of the trading day, the total trading volume of spot Bitcoin ETFs exceeded $4 billion. Half of this volume, or $2.1 billion, came from Grayscale’s Bitcoin ETF, and another $1 billion from the fund launched by BlackRock. Although the volumes are large, it is not possible to obtain information about the inflow or outflow of funds. Judging by the weakening of Bitcoin, outflows have prevailed. You can evaluate funds in the week of January 19, when more data will be available.

In the first hours after the launch of trading, the price of Bitcoin briefly approached $49 thousand, but the cryptocurrency failed to gain a foothold above this level. Some investors, as expected, preferred to take profits and sell coins, which put pressure on the Bitcoin rate and restrained its growth. By the end of the trading day, the price of Bitcoin stabilized at $46,300.

The general expectations of crypto market participants are full of moderate pessimism. Although on higher timeframes the overall upward trend looks quite stable. Bitcoin may test the resistance level at $50,000 in the coming week. But the current price of Bitcoin already takes into account the positive effect from the launch of the ETF, so it may not be easy for Bitcoin to reach this milestone. The increase in BTC price from the influx of institutional capital will be less rapid and will manifest itself in the long term. The nearest event, which market participants are now looking forward to with hope, is halving (that is, a planned halving of the number of newly issued bitcoins that are created and distributed among miners who verify and confirm transactions on the network. The procedure is embedded in the Bitcoin program code in order to so that the total number of coins in the network never exceeds 21 million units). The approval of a spot Bitcoin ETF also raised the chances of launching a similar fund linked to Ethereum. These expectations were reflected in the growth of the ETH rate, which managed to gain a foothold above $2,600.

Why didn’t Bitcoin start to skyrocket immediately after the Bitcoin ETF was approved? The reason is that the current price of Bitcoin has already taken into account the positive effect of the ETF’s approval. Rumors that the American regulator intends to approve applications to launch several ETFs at once have been circulating in the crypto market since mid-autumn. Bitcoin owes in part to these expectations an increase of more than 50% since October 2023, when it was trading just below $28 thousand. In addition, the short-term effect of the news about the approval of a Bitcoin ETF was blurred in time due to the hack of the SEC account in X (formerly Twitter). In the long term, the emergence of spot Bitcoin ETFs on major US exchanges is of great importance for the crypto market, as it opens up access to cryptocurrencies to a wider audience.

Thus, under the influence of volatility caused by important news, Bitcoin ends the week in the red by 2.77%, from the maximum by 12.8%, which is a disappointment for the bulls. The launch of a Bitcoin ETF did not bring the expected effect in the form of a massive influx of funds. Instead, there is an outflow from the market and strengthening of the bears’ positions. Bitcoin showed a 155% increase in anticipation of ETF approval last year. The forecast for the next week is negative. Since the price has dropped sharply, we should expect consolidation within 2-3 days. If we don’t go below $40,500, then we can see investor activity on Thursday-Friday. That is, volatility in the cryptocurrency market will most likely continue in the coming week. The bulls will try to overcome the pressure of the bears, and the range of fluctuations in the price of Bitcoin will expand to $42-47 thousand. The focus of investors’ attention is now shifting towards the possible approval of the first spot Ethereum-ETF. The hype around Ethereum has already led to an increase in the ETH price by 15% over the past week. The head of financial giant BlackRock, Larry Fink, said in an interview with CNBC that he “sees value” in an ETH-based spot ETF. In addition to ETH, volatility will affect other altcoins. Once the Bitcoin ETF is approved, investors who took profits and sold Bitcoin at the peak in the middle of last week can direct part of their capital into altcoins.

The macroeconomic situation in the American market will continue to put pressure on the cryptocurrency market. US inflation remains above target and market participants fear the US Federal Reserve will delay its decision to cut its key rate. The next meeting of the US Federal Reserve will take place on January 30 and 31, and most investors believe that following the meeting the Fed will not lower the key rate, but they really hope that this will happen in March 2024. Thus, until mid-March 2024, the cryptocurrency market will be under pressure from aspects of monetary policy in the United States.

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