Bitcoin is experiencing a notable decline in its price, hitting its lowest levels since early December, currently standing at $39,125. This downturn is attributed to a combination of institutional sales and low demand, reversing almost two months of gains.
The spotlight is on the Grayscale Bitcoin Trust (GBTC), a significant investment vehicle with over $20 billion in assets under management, as approximately 15,200 BTC (equivalent to $590 million) were transferred from known GBTC holdings to the custodian Coinbase on January 23.
— Lookonchain (@lookonchain) January 23, 2024
FTX, the cryptocurrency exchange, also contributes to the selling pressure. While the exact figures of BTC transferred from GBTC holdings are yet to be confirmed, concerns persist regarding the ongoing decline in Bitcoin’s price. Some attribute this price pressure to forced liquidations, particularly by FTX, which had substantial GBTC holdings before its closure.
Analysts’ Ambiguous Positions Regarding the Relationship Between Bitcoin Price and GBTC Sales
There is a debate about the impact of selling GBTC for BTC on the price of Bitcoin. Adam Back, CEO of Blockstream, a BTC technology firm. Clarifies that selling GBTC for BTC does not reduce the price of Bitcoin; rather, selling for USD and keeping it in USD does. He points out that USD sales are likely forced liquidations and bankruptcy sales. As seen in FTX’s $1 billion bankruptcy sale.
The discussion also involves the role of Bitcoin ETFs. Inflows into these ETFs are considered to counterbalance GBTC outflows. While some express skepticism about the impact of GBTC sales. Others emphasize the role of market dynamics, including ETF flows and liquidations.
Despite the recent price drop, optimists argue for a longer-term perspective, suggesting that current downward pressures may not be sustained indefinitely. Significant liquidations affected long positions in Bitcoin, amounting to $110 million in two days until January 23. However, some analysts, like Eric Balchunas of Bloomberg Intelligence, find reasons to be optimistic about Bitcoin’s overall performance. In the last 12 months, BTC/USD provided a 75% return, outperforming popular investments such as stocks.
As Bitcoin undergoes a recurring price decline due to institutional activities and market dynamics, analysts and enthusiasts continue to evaluate broader implications and the potential for market recovery. Considering the flagship cryptocurrency’s track record, it remains a matter of waiting and observing its evolution.