After introducing Bitcoin ETFs, the crypto market fell from $1.82 trillion to $1.66 trillion. Ethereum and other coins rose as Bitcoin’s dominance fell below 50%. Bitcoin hovered around $42,500, with traders eyeing purchases below $40,000.

Experts believe the immediate impact of the Bitcoin ETF approval is mostly over, expecting a more stable market. Despite the approval, Bitcoin’s value unexpectedly dropped by 17.7% in the past week, reaching $40,500 from nearly $49k on January 11, despite the entry of major players like BlackRock.

Factors Leading to Bitcoin Downtrend

To understand this sudden downturn, market intelligence firm IntoTheBlock analyzed on-chain data. They observed continuous inflows of Bitcoin into centralized exchanges (CEXs) for six weeks, totaling almost $2 billion in net deposits. Typically, sustained deposits into exchanges signal sell-offs, raising questions about the entities behind the selling pressure.

An important insight was the record-high average holding time for transacted Bitcoin, indicating that long-held BTC tokens were circulating. As per the research, it is linked to the outflow of individuals leaving the Grayscale Bitcoin Trust (GBTC).

However, the analysis also highlighted trends in Bitcoin addresses. Those holding over 1,000 BTC increased their wallets, while those with fewer than 1,000 BTC reduced their holdings in January. Addresses holding Bitcoin for 1-12 months decreased their balances. Long-term holders slightly decreased overall Bitcoin holdings, while short-term holders increased their positions since October 2023.

Despite concerns about the shift from long-term to short-term holders, IntoTheBlock argued that this scenario differs from previous market tops. Factors such as lower volume compared to previous bull markets and a limited decrease in long-term holders’ balances led the platform to suggest that Bitcoin might be facing a temporary setback rather than entering a bearish trend. They anticipate the asset returning to bullish territory.

After Short-Term Profit Taking, The Real Challenge

The other factor adding to the Bitcoin woes is the short-term impact of the spot Bitcoin ETF, which seems to be fading, as indicated by futures and options data. Since traders find the funding rate appealing, suggesting an imminent start of buying activities. Over the last 4 hours, both BTC futures and options open interests (OI) have been on the rise.

The total BTC futures open interest, covering various exchanges like CME, Binance, and Coinbase, is bouncing back with a 0.35% increase, reaching $18.31 billion. This signals a potential recovery in market interest and activity.

The ETFs on #Bitcoin have a net inflow of $782 million over the first three days.

That's more than 50% higher than ALL ETFs combined have done in 2023 in terms of volume.

People are bearish on #Bitcoin and have a negative outlook.

Don't be like that. Buy the dip and hold.
— Michaël van de Poppe (@CryptoMichNL) January 17, 2024

Michael van de Poppe, a top analyst, says don’t be negative about Bitcoin’s falling price. Instead, he suggests buying when prices drop and holding onto it long-term.

Read the article at Coinpedia