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Although Bitcoin has been performing well recently and the price has been reaching new highs, after the Bitcoin ETF was approved on January 11 of the new year, the price of Bitcoin has been in a state of decline after only a short increase, and even fell below 40,000 in the early morning of the 23rd. This is also the first time this year that the US dollar has fallen by more than 3% in a day. The price trend of Bitcoin has not ushered in a crazy rise as the outside world initially optimistically expected. Instead, it has experienced a sharp price drop. Many people do not understand Bitcoin. What's the reason for the plunge? The main reasons are summarized as Bitcoin ETF approval and US dollar liquidity. The editor of the currency circle will explain it in detail below.

 Why did Bitcoin plummet?

Bitcoin's plunge can be summed up as two major factors. First, the approval of the Bitcoin ETF is a “sell news” event. Secondly, there are problems caused by US dollar liquidity at the macro level. BitMex co-founder Arthur
Hayes said that Bitcoin’s downward trend may tell us that U.S. dollar flows will face problems in the future, and that this downward trend may continue until the U.S. Treasury Department releases a quarterly refinancing announcement on January 31.

According to "Bitcoin
News" reported that so far, Grayscale's GBTC has sold approximately 60,000 BTC. On the contrary, in addition to GBTC, as of January 19, nine other Bitcoin ETF institutions, including BlackRock and Fidelity, have purchased a total of 72,000 BTC. Therefore, the main reason for Bitcoin's sharp decline is not caused by Grayscale's selling.

On-chain analytics company Crypto
Quant believes that the selling mainly comes from short-term traders and whales who profited after last year's rebound, rather than from Grayscale. By the time the U.S. Securities and Exchange Commission approved its conversion to ETFs, Grayscale had accumulated nearly $30 billion in assets from large institutions and qualified individual investors. When Grayscale GBTC charges a high fee (1.5%) compared to the other 10 Bitcoin ETF institutions, this causes some individual investors to consider redeeming cash and choose other investment institutions with lower fees for investment. The result is that Grayscale can only sell BTC.

The existence of large institutions like FTX that directly redeem and liquidate caused Grayscale to sell BTC. According to Coindesk, FTX has sold approximately $1 billion of the Grayscale Bitcoin ETF, thus explaining the majority of the outflow.

JP Morgan analyst Nikolaos
Panigirtzoglou said that if the previous estimate of $3 billion is correct and $1.5 billion has already exited, then there may be another $1.5 billion that will exit the BTC space through profit-taking in GBTC, causing a price impact in the coming weeks. further pressure.

Of course, there will also be optimists in the crypto market who are optimistic about Bitcoin in the long term. January 21, Galaxy
The CEO of Digital stated on social media that although some people will sell GBTC, we think most of them will be absorbed by other Bitcoin ETFs. This indigestion will end in the next 6 months and BTC will see higher prices.

 Who is cutting leeks as Bitcoin plummets?

During Bitcoin’s plunge, short-term traders are often the first to cut the leeks. They trade at market highs and when the market begins to fall, they choose to sell their Bitcoin holdings to avoid further losses. Long-term investors will choose to continue holding, believing that the value of Bitcoin will rebound in the future. Leeks tend to enter the market at market highs. When they see the market starting to fall, they panic-sell Bitcoin, leading to further declines.

Participants in the Bitcoin market can be divided into several categories: long-term investors, short-term traders, and leeks.

Long-term investors are those who believe in the potential of Bitcoin and buy it and hold it for a long period of time in the expectation of higher returns in the future. They believe Bitcoin is a promising investment and are therefore relatively calm about market fluctuations.

Short-term traders are those who seek profits in the Bitcoin market through frequent buying and selling actions. They trade by taking advantage of price fluctuations in the market, hoping to make profits through short-term buying and selling. They are highly sensitive to the market and will adjust their investment strategies at any time.

Leeks refer to those who blindly follow the trend and participate in the Bitcoin market without sufficient knowledge and experience. They tend to enter at market highs and exit at market lows, leaving them vulnerable to losses. Leeks overreact to market fluctuations and are susceptible to market sentiment.

All the above content is the analysis and answer to the question of why Bitcoin plummeted. The recent price of Bitcoin has continued to fall, which once again reflects that the Bitcoin market is very complex and the price fluctuates greatly. In response to this trend, some people took advantage of the much-hyped launch of a number of exchange-traded funds (ETFs) earlier this month to take profits, while others continued to lose money. The editor of Bitcoin Circle reminds everyone to always remain rational when investing in cryptocurrency, especially when participating in Bitcoin transactions. You should carefully study market dynamics, understand market factors, and formulate investment strategies based on your own risk tolerance.