The launch of spot Bitcoin ETFs has paradoxically led to a bearish trend in Bitcoin prices, primarily driven by pressure from unresolved issues within the crypto sphere. A significant factor contributing to the bear market is the conversion of Grayscale's GBTC from a closed-end trust to an open-end spot ETF, leading to a substantial increase in Bitcoin's market liquidity. This transition allowed for sell-offs by bankruptcy liquidators like FTX.
Additionally, the bankrupt crypto exchange Mt.Gox has recently started repaying Bitcoin and Bitcoin Cash (BCH), further increasing market supply.
Overnight, Bitcoin prices plummeted from $49,000 per coin on January 11 to below $39,000, marking a 20% decline. Data from Coingalss revealed significant liquidation of long positions in Bitcoin since the approval of the spot Bitcoin ETFs.
Analysts have identified two key reasons for Bitcoin's entry into a technical bear market, beyond just a "sell-the-fact" profit-taking phase. First, Grayscale's spot Bitcoin ETF, GBTC, has been a major factor for fund outflows. Since its transformation into an ETF, GBTC has experienced a fund outflow of $2.8 billion. Established ten years ago as a closed-end fund, GBTC had nearly $30 billion in assets at the time of its conversion, leading early holders to opt for sell-offs.
FTX, in particular, has been a focal point within the crypto community during this sell-off, reportedly liquidating about $1 billion worth of 22 million shares from GBTC. Essentially, the funds flowing out of GBTC were not recouped or offset, with a significant portion liquidated due to FTX's clearance.
Additionally, the bankrupt Mt.Gox exchange is preparing to repay Bitcoin and Bitcoin Cash (BCH) via accounts on Bitstamp and Kraken. At least two creditors have reportedly received funds, with plans to repay 142,000 BTC and 143,000 BCH, along with approximately 69 billion Japanese yen (about $5.1 billion), by October 2024.
The increased supply from both GBTC and Mt.Gox has continuously pressured Bitcoin's sell-side, leading to the current bear market scenario. An X user predicted that Mt. Gox would supply 200,000 bitcoins to the market in the next two months, along with over 600,000 bitcoins from GBTC facing re-pricing.
By April this year, Bitcoin's market supply is expected to be halved, reducing the annual supply by 160,000 and contributing to the bearish market trend.
