Bitcoin has been stuck in a narrow trading range for the past week, unable to break out in either direction.
According to analysis from Material Indicators, high liquidity around the current price is dampening volatility and preventing a breakout. Too much bid support below $43,000 and strengthening resistance above that level has pinned bitcoin in place.
- Bitcoin price remains below $43,000 this week, stuck in a narrow trading range for the 7th day in a row due to high liquidity damping volatility
- The Value Days Destroyed (VDD) multiple, which signals frothiness, reached high levels suggesting bitcoin was due for a cooldown
- Over $1.6 billion has been redeemed from the Grayscale Bitcoin Trust (GBTC) since it converted to an ETF, allowing investors to reclaim their bitcoin
- Outflows from GBTC have exceeded inflows to other spot bitcoin ETFs, suggesting some GBTC investors are cashing out entirely
- If exchanges and brokers cut fees, up to $36 billion could rotate into spot bitcoin ETFs, but a fee war could limit inflows to lower levels
This period of sideways trading comes on the heels of bitcoin dropping 15% in just two days last week. That sudden crash followed the long-awaited launch of the first U.S. spot bitcoin exchange-traded funds (ETFs). While many in the crypto community believed the ETFs would spark the next bitcoin bull run, so far their impact has been limited.
Value Days Destroyed Multiple reached frothy levels for this early stage of the cycle.
— Philip Swift (@PositiveCrypto) January 18, 2024
In fact, since the launch of spot bitcoin ETFs, bitcoin’s price has fallen. This decline coincides with heavy outflows from the Grayscale Bitcoin Trust (GBTC), which led the push to get spot bitcoin ETFs approved. GBTC operated for years as a closed-end fund, allowing investors to buy exposure to bitcoin but not redeem their shares for actual coins.
Now that the trust has converted to an ETF structure, investors can finally cash out their holdings. According to JPMorgan analysts, up to $3 billion was invested into GBTC in 2021 at a discount to net asset value, in order to profit from the eventual conversion to an ETF. In the four days since conversion, over $1.6 billion has already flowed out of GBTC as investors take profits.
Rather than rotating into the new spot bitcoin ETFs with lower expense ratios, it appears many GBTC investors are exiting the bitcoin market entirely. Outflows from GBTC have exceeded the combined inflows into all other spot bitcoin ETFs so far. If the remaining trapped investment in GBTC continues to be redeemed and sold off, it could put significant downward pressure on bitcoin’s price.
JPMorgan estimates there may still be another $1.5 billion or more poised to exit GBTC in the coming weeks. Whether investors are cashing out for profits, fees, liquidity, or other reasons, this selling pressure is hampering any bullish response to the long-awaited spot ETF launch.
Of course, there is still ample room for money to shift into the new low-cost spot bitcoin ETFs if institutional demand exists. JPMorgan pegs the potential inflow at $36 billion, if retail brokers slash fees to compete. However, a fee war could ensue across exchanges, limiting total inflows. For now, the wall of redemption requests from GBTC appears to be overshadowing any fresh demand from new spot ETF entrants.