The Bitcoin (BTC) price just plunged below $40,000 for the first time since early December, taking its pullback from post-spot Bitcoin ETF approval highs above $49,000 to nearly 20%.
Having shed over 3.5% since the start of the day, the BTC price was last changing hands just above $40,000.
Reports that broke earlier on Monday alleged that FTX, which is currently going through bankruptcy proceedings and liquidating assets, sold as much as $1 billion of its Grayscale Bitcoin Trust (GBTC) holdings in wake of the approval of spot Bitcoin ETFs earlier in the month, explaining much of the outflows from the newly converted ETF.
GBTC has seen about $2 billion in outflows since converting to a spot ETF.
That compares to inflows of more than $4 billion to newly launched spot Bitcoin ETFs from BlackRock and competitors.
While net flows have been positive, Grayscale outflows have seemingly exceeded expectations, triggering nerves.
With FTX sales now assumed to be over, some Bitcoin bulls might be hoping that sell pressure abates.
But the Bitcoin market seems to disagree as BTC bears attempt to bury the price below $40,000.
Here’s How Low the Bears Could Bury the Bitcoin Price
The approval of spot Bitcoin ETFs in the US earlier this month was a historic moment for Bitcoin.
For the first time, investors in the US will be able to get direct exposure to movements in the Bitcoin price, without having to buy or take custody of any Bitcoin themselves.
The assumption is that this will unlock a wave of new demand from retail and institutional investors.
Big positive net inflows into newly launched spot Bitcoin ETFs has so far proven this thesis correct.
While new demand from ETF buyers is expected to be a long-term tailwind for the Bitcoin price, it hasn’t been enough to prevent a deflation following an arguably excessive build-up of optimism in the BTC market in the run-up to ETF approvals.
Indeed, spot Bitcoin ETF approvals appear to have been a major “sell-the-news” event.
This is where, following a big price run-up in the lead-up to a positive market catalyst, profit-taking causes a big price reversal once the positive catalyst (in this case, spot Bitcoin ETF approvals) is confirmed.
Simple chart analysis suggests that the Bitcoin price decline could have further to run.
Having slipped below its 21 and 50DMAs, the Bitcoin price has now broken under December/January support in the $40,000s.
That suggests a near-term test of November highs in the $38,000 is on the cards.
If this level and the 100DMA at $39,000 are cleanly broken, the door would be open to a drop all the way back to the long-term support-turned-resistance zone between $32,000 and $33,000.
Will Bulls Buy the Dip?
All the above being said, Bitcoin’s bull case for 2024 remains strong.
New spot Bitcoin ETFs add a new structural source of long-term demand.
Meanwhile, the upcoming halving will structurally reduce sell pressure from Bitcoin miners.
And while questions remain about how soon they will start, Fed interest rate cuts are very likely in 2024.
That means liquidity conditions should be about to substantially improve, just as demand rises and supply falls.
That’s a very bullish cocktail.
Long-term Bitcoin bulls will be happy to scoop up tokens from the Bitcoin bears as BTC falls into the $30,000s.
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.