The iShares Bitcoin Trust (IBIT), Grayscale Bitcoin Trust (GBTC), and Valkyrie Bitcoin Fund Trust (BRRR) ETFs plunged hard on Friday as Bitcoin suffered a harsh reversal, as was expected. These funds, which track Bitcoin prices, are expected to remain under pressure when the market opens on Tuesday since BTC has retreated to $42,000.
Why BTC and Bitcoin ETFs retreated
Bitcoin and its ETFs have crashed hard in the past few days even after the SEC allowed the spot ETPs to trade. This move, which it made reluctantly, is seen as the biggest event in the cryptocurrency industry.
The pullback was in line with expectations because of a situation known as buying the rumour, selling the news. In most cases, assets tend to rally ahead of a major event and then retreat when it happens. Besides, most people were already expecting the SEC to approve the ETF.
We have seen this story before. Bitcoin and other cryptocurrencies surged after the launch of ProShares Bitcoin Strategy ETF (BITO) in 2021 and then pulled back. They also jumped after the CME and Cboe Markets launched their Bitcoin futures a few years ago.
Therefore, Bitcoin and these ETFs are expected to remain under pressure in the coming months as the recent bonanza fades. It will then enter a new normal with inflows expected to remain being moderate.
There is also a major concern about the safety of Coinbase, which was selected by most ETF providers as the custodian. Coinbase is known for having a good track record of safety over the years.
However, this does not mean that the company cannot be hacked by sophisticated actors like North Korea’s Lazarus.
The other concern is that the Federal Reserve could maintain a restrictive posture for a longer period than expected. Last week, data published last week revealed that American inflation jumped to 3.4% in December while core CPI dropped to 3.8%.
Further, the US labor market has been quite strong recently as the unemployment rate dropped to 3.7%. Wage growth rose by 4% in December. Therefore, there is a likelihood that the Fed will wait until June to hike rates.
Watch here: https://www.youtube.com/embed/sAnHLoK8CdU?feature=oembed
The case for buying the dip
Bitcoin vs S&P 500 vs Nasdaq 100
The approval of spot Bitcoin ETFs was a big thing for cryptocurrencies. However, in the long term, it will be a small event in Bitcoin’s journey. Few remember how big other events like the collapse of Mt.Gox, FTX, and the Bitcoin Cash hard fork were.
I believe that buying the dip now makes sense for a few reasons. First, Bitcoin halving is expected to happen in April this year. This halving will lead to significantly reduced Bitcoin rewards. It will also lead to higher mining difficulty, which will have an impact on supplies. Bitcoin tends to do well ahead of halving.
Second, Bitcoin has proven that it can thrive in difficult periods. It has thrived after the collapse of FTX, Voyager Digital, and Three Arrows Capital. Most importantly, it has moved in sync with stocks as the Fed hiked interest rates. This is a sign that Bitcoin has gone through a tough stress test and prevailed.
Third, Bitcoin has been a major outperformer over the years. It has risen from less than $10 in 2009 to over $40,000 today. This transition will likely see more investors allocate a small portion of their funds to Bitcoin ETFs.
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