Why Bitcoin’s ‘relentless’ selling will end in weeks

Bitcoin is down 20% since Wall Street launched its ETFs.
Analysts at K33 blamed a variety of factors for the slump, including CME futures unwinding and the FTX estate selling its GBTC shares.
These structural problems will soon subside, they said.

Bitcoin has tumbled almost 20% since BlackRock, Fidelity, and other firms launched their long awaited spot Bitcoin exchange-traded funds. Although, the cryptocurrency slightly recovered over the past 24 hours.

Analysts at crypto research firm K33 Research explain the reasons for the decline — and why market participants can expect the selling pressure to ease soon.

Structural selling

Less than two weeks after they launched, new Bitcoin ETFs have seen nearly $1 billion in net inflows — but that hasn’t been enough to keep Bitcoin’s price up.

Structural factors, CME futures outflows, and spot selling are likely to blame, K33′s head of research Anders Helseth and senior analyst Vetle Lunde wrote in a report Monday.

Open interest at CME Group, the largest Bitcoin futures venue in the world, has declined by 28% among entities that haven’t issued a Bitcoin ETF, the report said.

Open interest reflects the total number of outstanding futures contracts held by market participants.

“The market is experiencing structural selling,” K33 said.

“CME traders unsurprisingly [reduced] exposure following the ETF launch” the firm said, and this could continue until it drops another 35% — back to its 2023 average.

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Bitcoin is also experiencing spot selling pressure, as traders who entered well ahead of the ETF launch are now taking profit, the analysts said.

Grayscale’s GBTC — which converted into a spot ETF — is particularly relevant to current price action. The ETF has seen nearly $4 billion in outflows since January 11.

The report blamed some of these flows on the FTX bankruptcy estate, which likely exited its position, worth around $1 billion.

Market participants arbitraging GBTC are likely also closing their trades, the analysts said.

“Outflows from GBTC are relentless but will, over time, dwindle,” they wrote. “Structural effects should play out with less intensity shortly, stabilising Bitcoin’s price as we enter February,” the analysts added. “Reduced exposure on CME will likely play out rapidly as we approach Friday’s January futures settlement.”

Bitwise’s chief investment officer Matt Hougan, who was previously CEO at ETF analytics firm ETF.com and chairman at events firm inside ETFs, echoed K33′s assessment.

“This is an ETF expectations-led sell-off,” he posted on X. “The market front-ran the ETF approval by piling into both spot Bitcoin and Bitcoin derivatives. It expected larger net flows into ETFs than we’ve gotten so far, and is now unwinding that bet.”

“Just as the market overestimated the short-term impact of ETFs, it is underestimating the long-term impact,” he added.

Crypto market movers

Bitcoin is up 3.1% in the last 24 hours, trading at $39,960.
Ethereum rose 2.1% in the same period, now at $2,228.
Avalanche and Solana are up 12% and 8%, respectively.

What we’re reading

Trump just made CBDCs an election issue. Connecting them to China is his next likely move — DL News
JPMorgan Downgrades Coinbase Stock To ‘Underweight’ Amidst Falling Crypto Prices — Milk Road
How Polychain Capital Avoided the Crypto Blow-Ups of 2022 — Unchained
Mt. Gox Inches Closer To Bitcoin Repayments: Report — Milk Road
EigenLayer airdrop hunters piling into this obscure token help drive 2,076% surge — DL News

Tom Carreras is a markets correspondent at DL News. Got a tip? Reach out at tcarreras@dlnews.com