On January 3, Bitcoin experienced a sudden plunge, with its value dropping over 10% in 24 hours, falling below $41,000 per coin. Just a day prior, Bitcoin had surpassed $45,000 per coin, reaching a 21-month high, with an annual gain of 160% in 2023.
Analysts believe the significant volatility in virtual currencies is linked to the pessimistic market sentiment regarding the approval of a Bitcoin spot ETF between January 8-10. This sentiment led to a general decline in digital currencies, with Ether falling over 7%, Cardano (ADA) nearly 14%, Dogecoin over 11%, and TRON over 5% in 24 hours.
According to CoinGlass data, Bitcoin long positions worth $104 million were liquidated in the last hour, and over the past 24 hours, more than $550 million in digital currency long positions were liquidated.
The volatility also affected related stocks, with shares of the cryptocurrency exchange Coinbase dropping 6.7% before the market opened.
Fadi Aboualfa, Research Director at Copper Technologies Ltd., suggested in an email that 2024 would be a year full of questions. As the market begins to weigh the risks of all asset classes, he said, "we might see an increase in volatility in the short term."
Bitcoin Spot ETF Unlikely to Get Approval in January
Previously, there was speculation that the first Bitcoin spot ETF might be approved in January, contributing to Bitcoin's significant rise in December. However, Markus Thielen, an analyst at the digital currency financial services platform Matrixport, released a report indicating that they expect the U.S. Securities and Exchange Commission (SEC) to reject all Bitcoin spot ETF proposals in January. The final approval might not happen until the second quarter of 2024. They expect Bitcoin's price could fall to $36,000-$38,000 following the rejection:
"We believe the current ETF applications haven't met a critical prerequisite for SEC approval and anticipate all proposals will be rejected in January."
Since traders began betting on ETF approval in September 2023, over $14 billion has flowed into digital currency-related assets. While some of this influx might be related to the Federal Reserve's shift, approximately $10 billion is likely linked to expectations of ETF approval.
A significant price drop in Bitcoin, potentially by 20% to the $36,000-$38,000 range, could occur if the SEC rejects the ETF applications, triggering a market chain reaction.
The website Greeks.Live notes that the likelihood of the SEC approving an ETF is diminishing, leading to a stalemate in the market: Weakness in cryptocurrency stocks and selling off of several U.S.-listed cryptocurrency-related stocks further reinforce the market's skepticism.
Bitcoin's Volatile Prices One Reason for SEC's Caution
A Bitcoin spot ETF, based on actual Bitcoin assets, is a compliant investment tool for traditional capital market investors to hold Bitcoin. Whether it gets approved in the U.S. is a focal point for the market. The SEC has repeatedly rejected applications for Bitcoin spot ETFs, citing the volatile market prices and insufficient investor protection. For instance, a false news report once led to the liquidation of nearly $100 million in digital currency positions in less than an hour - not an uncommon occurrence in the cryptocurrency market.
Analysts note that the SEC has postponed decisions on Bitcoin spot ETF applications from firms like WisdomTree, Invesco Galaxy, Valkyrie, Fidelity, VanEck, Bitwise, and BlackRock. The latest review dates for the 11 primary Bitcoin spot ETF applications are concentrated around mid-October, with the final deadline in March 2024. The market is witnessing a peak period for Bitcoin spot ETF applications in the U.S.
Compared to a decade ago, this batch of Bitcoin spot ETF applications includes mainstream financial investment institutions like BlackRock. If approved, the capital entering digital currency investments is expected to be primarily traditional financial capital, marking a shift from the past.
