Bitcoin has fallen from recent highs, crashing below $63,000. The unfortunate decline came after the world’s largest cryptocurrency by market capitalization hit its all-time high (ATH) of $73,700 on March 14.
Bitcoin has now crashed nearly 14% from its ATH, disappointing investors already hoping for heavy gains this year. The crash also caused liquidations of more than $134 million in long positions. Current CoinMarketCap data shows that the king coin has lost nearly 6% in the last 24 hours and over 12% in 7 days.
Although Bitcoin’s unit price has taken a hit, large numbers are still coming from the spot exchange-traded fund (ETF) market. According to data from BitMEX research, the ETFs had a net inflow of more than $1 billion on March 12, a daily record since trading began on January 11. This shows a sustained interest in the Bitcoin market from traditional entities looking to trade.
The continued interest points to a good chance of increased adoption of the king coin across several sectors. In addition to increased usage in finance, even entertainment sectors like gambling are now more interested in playing with Bitcoin, allowing users to deposit, bet, and withdraw using crypto instead of fiat. These online casinos also contribute to general levels of adoption by offering the same popular games to traditional gamblers but with the added protection of the Bitcoin network.
Some believe that Bitcoin’s recent plunge may be due to reduced market action over the last weekend. Unfortunately, BitMEX Research data also shows that on March 18, the entire BTC ETF market recorded net outflows of more than $154 million, despite BlackRock’s IBIT ETF attracting a $451.5 million net inflow.
The outflows were high due to Grayscale’s continuous bleeding. Since ETFs were approved, Grayscale has not recorded any daily net inflows. On March 18, the GBTC ETF’s outflows hit $642.5 million, the highest outflow the ETF has experienced since January.
Previously, Grayscale Investments CEO Michael Sonnenshein defended its 1.5% management fee, noting the company’s track record. The GBTC ETF was converted from the world’s largest Bitcoin Trust, which has been active since 2013. Speaking to CNBC at the World Economic Forum in Davos back in January, Sonnenshein said investors consider several points, including track record and liquidity, before choosing where to put their money. Describing Grayscale as a crypto specialist, Sonnehshein said other ETFs have lower fees because they have no track record. He added that this might “call into question their long-term commitment to the asset class.”
Interestingly, Sonnehshein has now hinted at a possible fee reduction over time. Now that the $26 billion fund has lost $12 billion since conversion to an ETF, Sonneshein said in a recent interview that the fees will reduce as the market matures. According to him, there are several other markets where products are usually priced higher early in their lifecycle.
The CEO also added that Grayscale anticipated the outflows. However, he said that despite the withdrawals, GBTC is still trading liquidly with tight spreads, and across a very diversified shareholder base. Sonneshein also said he anticipates a “second and third inning” where a large part of the market gains access to ETFs. He described the last 2 months as the “first inning,” characterized by pent-up demand for buying and selling.
The ETFs are expected to be bullish for Bitcoin in the long term despite fluctuations in market activity. However, a combination of the ETFs and Bitcoin’s upcoming halving offers a blend of potentially positive price action for the king coin. Halving events are network occurrences that happen every 210,000 blocks, and they take about four years. At each halving, the block rewards miners receive fall by 50%, directly reducing the volume of Bitcoin entering circulation. This leads to a scarcity that raises the price of Bitcoin.
The first Bitcoin halving took place in 2012, reducing the block reward from 50 BTC to 25 BTC. Four years later, the second halving reduced block rewards to 12.5 BTC, with the third event in 2020 crashing the rewards to 6.25 BTC. The 2024 halving will lower the reward for miners to 3.125 BTC.
Considering the effect of a halving coupled with the ETF market, most observers agree that Bitcoin is set for a significant rise this year. Historically, the price of Bitcoin has reacted positively to halving events, although not immediately. Most of the bullishness is usually seen a few months to a year after, when all the initial activity has vanished, and the market has somewhat stabilized. At the first halving, Bitcoin traded at $13 and jumped more than 8,700% to $1,152. The second halving resulted in a significant increase, with Bitcoin jumping from $664 at the time of the event to $17,760. Expectedly, the third halving pushed Bitcoin, rising from $9,734 in May 2020 to $67,549 in 2021.
Most of the market is bullish about Bitcoin’s chance of a spike at the next halving because of historical data. This event might be different because the spot Bitcoin ETF market is considerably driving increased interest in Bitcoin. This increased interest from the traditional market, when combined with the scarcity from the halving, could result in a new all-time high for Bitcoin before the end of the year.
Featured image provided by Photo by Kanchanara; Unsplash; Thanks!
