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It has been a sea of red in the cryptocurrency market in the past two weeks as the enthusiasm of Bitcoin ETFs dropped. Bitcoin price has crashed from $49,000 to below $40,000. Similarly, altcoins like Solana, IOTA, and Avalanche (AVAX) have all pulled back. As a result, many longs have been liquidated while the total market cap of all coins has dropped to $1.56 trillion.
Bitcoin vs IOTA vs Solana vs Avalanche
Why are cryptocurrencies falling?
Bitcoin and other cryptocurrencies are crashing because of a situation known as buy the rumours, sell the news. This is a common situation that happens across all assets, including stocks, commodities, and forex.
The idea is that investors buy an asset based on the rumours and then dump it when it happens. In this case, everyone knew that the Securities and Exchange Commission (SEC) would approve these ETFs, especially after losing the Grayscale lawsuit.
Odds of approval also increased when companies like Blackrock, Invesco, and Franklin Templeton got involved. These are huge companies in the financial services industry, where they control over $13 trillion in assets.
As a result, Bitcoin jumped from less than $20,000 in 2022 to over $45,000 before the spot Bitcoin ETF approval. Therefore, the momentum has now faded as investors focus on inflows and outflows in the industry.
Recent data shows that inflows have been stronger than expected. Investors added over $6.5 billion in ETFs in the first week. Some analysts had modeled about $2 billion in inflows during this period.
Bitcoin has also dropped because of some selling pressure from FTX Estate, which sold $1 billion this week.
What should crypto holders do?
Now, the concern among Bitcoin, Solana, IOTA, and AVAX investors is what to do now that their prices have plunged. Analysts have mixed opinions about this, with some recommending selling all crypto assets and moving to other assets like stocks, which have surged to their record highs.
All the spot #BitcoinETFs are now in bear markets, defined as a drop of 20% or more from the peak. The biggest loser is $FBTC, down 32%. I think the Vaneck #Bitcoin Trust should change its symbol from $HODL to GTFO.
— Peter Schiff (@PeterSchiff) January 22, 2024
Some analysts, on the other hand, believe that Bitcoin and other altcoins will bounce back for several reasons. First, there are several catalysts that could have an impact on Bitcoin in the coming months. For example, the Fed is expected to start cutting interest rates this year while Bitcoin halving will happen in April. Historically, BTC tends to do well ahead and after halving happens.
Second, Bitcoin’s fundamentals are still strong, with rising demand accompanied by falling supplies. This trend will likely continue in the coming years as institutional investors allocate some of their dry powder to Bitcoin.
Third, the current Bitcoin sell-off is in line with what most analysts and investors were expecting since the concept of buy the rumours, sell the news is known well. Additionally, Bitcoin tends to pull back sharply as it nears a key resistance level like $50,000.Therefore, I am leaning on the latter side, where I believe that Bitcoin and other altcoins will bounce back in the coming months. Besides, investors have embraced a risk-on sentiment in the market as evidenced by the performance of stocks and bonds. Altcoins like Solana, AVAX, and IOTA have a close correlation with Bitcoin.
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