The price of bitcoin plunged below the key psychological level of $40,000 over the weekend, reaching a 7-week low of $39,440 on Saturday. The flagship cryptocurrency is down nearly 20% from its 2024 high of $48,500 hit earlier in January, as bears have wrested control of the market from increasingly weary bulls.
TLDR
- Bitcoin price dropped below $40,000, hitting a 7-week low of $39,440. Traders warn there may be further downside to $38,000.
- Grayscale Bitcoin Trust (GBTC) sold $640 million in Bitcoin on January 22nd, outweighing inflows into other spot BTC ETFs like BlackRock’s iShares Bitcoin Trust (IBIT).
- Analysts predict the Bitcoin correction could go as deep as 30%, to around $34,000, if bulls can’t build momentum.
- GBTC selling is expected to ease as the initial turmoil from the launch of spot ETFs subsides. This could fuel a short squeeze and FOMO rally.
- Mt. Gox could soon start repaying some creditors in Bitcoin from its holdings of over 200,000 BTC. This could put selling pressure on the market.
Driving much of the sell-off is dumping of bitcoin holdings from Grayscale’s Bitcoin Trust (GBTC), the largest bitcoin institutional investment vehicle. GBTC sold $640 million worth of bitcoin on January 22nd alone, outpacing inflows into rival spot bitcoin ETFs like BlackRock’s iShares Bitcoin Trust (IBIT). GBTC has already dumped over 550,000 bitcoin onto the open market since launching spot ETFs became an alternative option for institutional investment exposure.
The influx of new bitcoin supply from GBTC, combined with momentum fading among dip buyers, has analysts predicting further downside for bitcoin possibly to the $34,000 level. “Still more to go,” warned former BitMEX CEO Arthur Hayes, echoing the sentiment from trading platform Material Indicators that bitcoin bulls need to “build some momentum” soon to avoid retesting $38,000 support.
Still more to go … pic.twitter.com/zbjzaVLiyh
— Arthur Hayes (@CryptoHayes) January 22, 2024
There is a light at the end of the tunnel, however. Analysts widely expect the pace of GBTC selling to slow in the coming weeks as the initial scramble among institutions to rotate into spot ETFs cools. Volume on spot bitcoin ETFs remains robust at over $2 billion daily, but GBTC accounted for just over half that flow last week compared to nearly all of it initially.
Once GBTC selling pressure eases, some strategists forecast the setup for a short squeeze fueled by FOMO from new institutional buyers and retail traders. The resulting rally could be amplified by the unwinding of $2.135 billion worth of leveraged bitcoin shorts, currently underwater, as prices bounce back above $42,500 resistance.
An added wildcard in the bitcoin supply equation recently emerged as well – the long-dormant Mt. Gox exchange. Reports suggest Mt. Gox could soon repay some creditors over the next two months with payouts from its holdings of over 200,000 bitcoin.
While selling pressure should be limited as many debts have already been sold off, the influx of previously locked up coins could negatively impact fragile bitcoin prices and dampen bullish sentiment going into the 2024 bitcoin halving event.
