Cryptocurrencies usually witness wide price fluctuations, which were clearly evident over the past weeks, especially after allowing Bitcoin traded investment funds, which despite traders’ expectations that it would contribute to a jump in the largest cryptocurrency prices, the reality indicates the opposite.
Bitcoin has declined by about 18 percent since the announcement of the approval of ETF funds, a decline that analysts do not believe will continue, after the markets absorbed the recent developments, and in light of the cryptocurrency’s adherence to an upward path in the long term.
Last week, although Bitcoin fell sharply to the level of $39,000 at the beginning of trading, for the first time since the beginning of last December, it ended the week’s trading at an increase, closing at approximately $42,131.
Analysts widely believe that the heavy selling witnessed by the cryptocurrency may have finally reached its peak, which was confirmed by a report issued by JP Morgan, while others expect a low level to $36,000.
- The cryptocurrency achieved significant gains in the second half of last year 2023, supported by investors’ readiness for the approval of exchange-traded funds.
- But after the approval, prices witnessed an immediate decline of about 18 percent so far amid selling pressure.
What are the most prominent reasons?
Digital currency expert, Ahmed Shams El-Din, in exclusive statements to the “Eqtisad Sky News Arabia” website, attributed this decline to several reasons:
- Sales by investors who bought before the ETFs were approved caused this decline.
- The large investments that flowed into ETF funds, especially from BlackRock, were not influential, because a large portion of this money, estimated at $2.8 billion, was present in Bitcoin investment funds, and thus this money was transferred from Bitcoin to ETF funds.
- FTX’s bankrupt asset sales also contributed to the decline in confidence.
- In light of these conditions, supply and demand remain the master of the situation, and one of the main factors that determine the price of digital currencies.
Bitcoin recorded a jump of about 160 percent during the past year 2023, a year that witnessed the awakening of the cryptocurrency market in light of the political, geopolitical and economic turmoil that prompted investors to search for safe havens and diversify their investments.
After Bitcoin started the year 2023 at a level of $16.6 thousand, it was able to end the year at a level above $42 thousand. Despite this, it is still far from the highest record level it recorded in November 2021 when it exceeded $68.7 thousand.
Bitcoin ended transactions in the first week of the current year 2024 at $43,832, while transactions in the second week of the year ended at $43,830, and ended transactions in the third week at $41,857, before closing in the last week ending on January 26 at $42,131.
Where is Bitcoin headed?
Senior financial markets analyst at Equity Group, Ahmed Azzam, said in statements to the “Eqtisad Sky News Arabia” website that there are two reasons why Bitcoin ETFs have not given a major boost to cryptocurrencies yet, which are:
- Applying a well-known principle in the financial markets that “the markets bought the rumor and sold the news.” They bought the rumor (i.e. recorded a boom) when BlackRock announced its progress to create instant Bitcoin funds “ETF” last June, as the price of Bitcoin at that time was 25 thousand. Dollars, then it rose until it reached the level of 42 thousand dollars per currency (that is, approximately the level of 70 percent of the currency price), then it reached 49 thousand dollars with the launch of the fund, then after announcing its approval, the markets sold the news with investors selling and profit-taking operations took place. This was followed by a decline in Bitcoin until it reached $42,000.
- The second factor is related to the method of purchasing in spot Bitcoin ETFs, which is characterized by the fact that it does not occur in real time. When individuals buy shares or sell these funds, the purchase or sale is not done at the time of the decision, and instead Bitcoin shares are purchased a day or two before. At least, the issuer of the ETF creates shares that are then used to buy Bitcoin, which is an indirect mechanism that affects the price of Bitcoin and does not reflect the trading price at the time of actual activity.
Azzam predicted that the decline in digital currencies will not continue for a long period of time due to:
- Possibility of increasing investments from trading funds.
- The supply of Bitcoin is limited, amounting to 21 million coins.
- Halving the miners’ reward will result in a reduction in the supply of the currency while increasing the demand for it, and this may result in some boost to digital currencies in the coming period.
- Many digital currencies, especially Bitcoin, are not transferable and are considered long-term investments.
It is noteworthy that during the month of next April, the process of halving Bitcoin will take place, that is, reducing the reward for miners for Bitcoin, and this will result in a reduction in the supply rate.
It is economically known that a reduction in supply is followed by a price payment for the financial asset.
The halving of Bitcoin has historically represented a price driver for this important digital currency, and this will result in a positive price for trading in Bitcoin and other digital currencies, as Bitcoin represents between 48 percent and 50 percent of the digital currency community, and therefore a price boom for it will reflect positively on the rest of the digital currencies. Digital currencies in general.
2024-01-28 08:15:40
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