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Bitcoin’s Winning Streak Comes to an End Following ETF Approval

Bitcoin experienced its longest losing streak in about a month, responding to the approval of spot Bitcoin (BTC) ETFs by the US Securities and Exchange Commission.

Despite significant volatility in recent days, the leading cryptocurrency is currently trading relatively unchanged at $42,655.

The decline, the longest since mid-December, has left investors uncertain about the short-term trajectory of the cryptocurrency.

The recent turbulence can be attributed to the launch of nearly a dozen US exchange-traded funds (ETFs) focused on cryptocurrencies, including offerings from major investment firms such as BlackRock Inc. and Fidelity Investments.

Although these ETFs officially started trading on January 11th and initially propelled Bitcoin to a two-year high above $49,000, the excitement quickly waned, leading to a retracement.

Market analysts explain the price action as a classic “buy-the-rumor, sell-the-fact reaction.” Chart patterns suggest a potential slide to the $38,000 to $40,000 range for Bitcoin, indicating that the anticipation surrounding the ETFs had already been priced into the market, prompting profit-taking by some investors.

Proponents of Bitcoin view the approval of these US spot ETFs as a significant milestone for the cryptocurrency, offering increased accessibility for both institutional and retail investors. However, skeptics point to the tumultuous year cryptocurrencies, especially Bitcoin, had in 2022, marked by a severe crash and subsequent bankruptcies, raising concerns about broader adoption.

Despite the recent dip, new US spot funds attracted a net inflow of $819 million over the first two days of trading, with substantial investments in BlackRock’s iShares Bitcoin Trust and Fidelity Wise Origin Bitcoin Fund. In contrast, the $26 billion Grayscale Bitcoin Trust, the largest Bitcoin fund, experienced $579 million in outflows after its transition into an ETF the previous week.

The change in investor sentiment was partly due to the fund’s shift from a closed-ended structure to an ETF, narrowing the discount to its underlying holdings. Analysts suggest that speculators taking profits as the discount between the Grayscale Bitcoin Trust and its holdings nearly disappeared may have contributed to Bitcoin’s recent weakness.

While it is unlikely that all outflows from the Grayscale Bitcoin Trust were reinvested directly into Bitcoin, the new ETFs are anticipated to continue experiencing strong inflows as more sidelined capital enters the market.

In the coming weeks, these ETFs are expected to garner more attention and inflows as their marketing campaigns gain momentum. However, caution is advised, as short-term outflows may occur during the unwinding of speculative positions.

According to Andrew Peel, the head of digital asset markets at Morgan Stanley, the approval of spot Bitcoin ETFs could signify a “potential paradigm shift in the global perception and use of digital assets.”

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