Crypto Quill

The world’s largest cryptocurrency, Bitcoin, has been experiencing a downward trend in the past few weeks, falling below the $41,000 mark on Thursday. The decline has sparked a debate among investors and analysts about the future trajectory of Bitcoin and the impact of the recent approval of spot Bitcoin exchange-traded funds (ETFs) in the US.

Bitcoin ETFs Fail to Boost Price

Many in the crypto community had anticipated that the approval of spot Bitcoin ETFs by the US Securities and Exchange Commission (SEC) on Jan. 10 would boost the demand and price of Bitcoin. However, the opposite seems to have happened, as Bitcoin has lost about 12% of its value since then.

One of the reasons for this is the mass exit of investors from the Grayscale Bitcoin Trust (GBTC), which is converting into a spot Bitcoin ETF. GBTC shares were previously restricted to accredited investors and had a mandatory 6-month lockup period. The conversion allowed investors to redeem their GBTC shares for Bitcoin, leading to a huge outflow of more than $2.2 billion from the fund in the last week.

Grayscale responded by moving hundreds of millions of dollars in Bitcoin to its custodian Coinbase for liquidation. This added selling pressure on Bitcoin, contributing to its decline.

Another reason is that the market had already priced in the positive development of Bitcoin ETFs, leading to a phenomenon known as “selling the news”. Investors opted to cash in on their positions following the anticipated approval, resulting in a lack of sustained gains for Bitcoin.

Bitcoin Faces Technical and Fundamental Challenges

Besides the market dynamics, Bitcoin also faces some technical and fundamental challenges that could affect its future performance. On the technical side, Bitcoin has failed to overcome the resistance level of $43,000, which is also the 200-day moving average. This indicates a bearish trend that could pull Bitcoin lower in the short term.

Some analysts have projected that Bitcoin could fall to as low as $36,000, which is the next major support level. Others have warned that Bitcoin could enter a prolonged correction phase, similar to the one in 2018, when it lost more than 80% of its value.

On the fundamental side, Bitcoin faces increasing competition from other cryptocurrencies, especially Ethereum, which has been gaining popularity and market share. Ethereum has also benefited from the growth of decentralized finance (DeFi) and non-fungible tokens (NFTs), which are mostly built on its platform.

Ethereum is also undergoing a major upgrade, known as Ethereum 2.0, which aims to improve its scalability, security, and efficiency. Ethereum 2.0 will also transition Ethereum from a proof-of-work (PoW) consensus mechanism, which relies on energy-intensive mining, to a proof-of-stake (PoS) consensus mechanism, which is more environmentally friendly and cost-effective.

These factors could make Ethereum more attractive and competitive than Bitcoin, which still uses the PoW system and consumes a lot of electricity. Some investors and analysts have predicted that Ethereum could eventually overtake Bitcoin as the largest cryptocurrency by market cap.

Bitcoin Remains Optimistic in the Long Term

Despite the recent challenges, some Bitcoin supporters remain optimistic about its long-term prospects. They argue that Bitcoin is still the most secure, decentralized, and scarce cryptocurrency, with a limited supply of 21 million coins. They also believe that Bitcoin is a hedge against inflation and currency devaluation, especially in times of economic and political uncertainty.

Some prominent figures in the crypto space have expressed bullish views on Bitcoin’s future. For instance, SkyBridge’s founder and managing partner Anthony Scaramucci predicted that Bitcoin’s price could surpass $170,000 by mid-to-late 2025, citing the upcoming Bitcoin halving scheduled for April 2024. The halving is an event that reduces the reward for mining new blocks by 50%, making Bitcoin more scarce and valuable.

Another example is MicroStrategy’s CEO Michael Saylor, who has been one of the biggest corporate buyers of Bitcoin. Saylor said that he is not worried about the short-term fluctuations of Bitcoin, and that he is confident that Bitcoin will reach $1 million in the next decade. He also said that he plans to hold Bitcoin for 100 years, as he considers it to be a superior store of value than any other asset.

Bitcoin is currently trading at around $40,600, down by 2.7% in the past 24 hours and 3.7% in the past week, according to CoinGecko. The global crypto market cap has also declined by 2.7% to $1.68 trillion. The rest of the crypto market has followed Bitcoin’s lead, with most of the top 10 cryptocurrencies by market cap recording losses.