Unpacking The Impact: Bitcoin ETF Sparks New Market Activity And Price Volatility Levels

In the wake of the recent debut of the inaugural cluster of spot Bitcoin exchange-traded funds (ETFs) within the U.S., the cryptocurrency market has undergone notable shifts, characterized by heightened dynamics and an escalation in the level of price volatility of the world's foremost cryptocurrency, which maintains the highest market capitalization.

The official launch of spot Bitcoin ETFs in the country caused heightened market activity as seen in the increased seven-day daily volume on centralized cryptocurrency exchange platforms between Jan. 8 and 14, which saw the daily volume surge to a whopping $50 billion. This is the highest daily volume recorded since November 2022.

"The ETF launch spurred increased activity across the entire market and not limited to BTC," Matteo Greco, Research Analyst at the publicly listed digital asset and fintech investment business Fineqia International told International Business Times via email.

"Between the 8th and the 14th of January, BTC recorded a daily volume of $17.8 billion, reflecting a 26% increase from the $14.1 billion recorded in the preceding week. Ethereum (ETH) exhibited a total daily volume of $7.7 billion during the same period, signifying an 83% increase from the $4.2 billion recorded in the prior week, showcasing an increased activity for the whole market," the research analyst explained while underlining the crypto investment vehicle's impact not only to Bitcoin but also in Ethereum and the broader cryptocurrency market.

The market last week showed strength as substantiated by Bitcoin dominance, which recorded a 5.4% drop in its performance at the week's end at 51.1% against the 54% dominance it achieved in the previous week.

Bitcoin dominance is the crypto asset's market capitalization against the market cap of the entire crypto market.

The research analyst ran down what happened to Bitcoin's price last week, explaining: "Bitcoin (BTC) concluded the week at approximately $41,750, marking a 5.0% decrease from the previous week's closing value of around $43,750. The price exhibited significant volatility, primarily influenced by the approval of BTC Spot ETFs, which heightened market dynamics."

He said, "On Wednesday, the SEC granted approval for BTC Spot ETFs, intensifying volatility, particularly on Thursday when ETF trading commenced. BTC surged to almost $49,000 before initiating a substantial downtrend, notably on Friday, with a 7.7% price decline, breaking below $43,000. Throughout the weekend, the price experienced a gradual decrease, ultimately closing the week at approximately $41,750."

Greco added, "The week commenced with a robust uptrend on Monday in anticipation of the approval, witnessing a 9.0% price increase and nearly reaching $47,000. Tuesday saw BTC nearing $48,000 before encountering pronounced volatility due to false news regarding the approval, causing a dip below $45,000 before stabilizing around $46,000 overnight."

According to the research analyst, "The price action of BTC, coupled with volume data and the performance of certain altcoins, demonstrates the adherence to the typical "buy the rumor, sell the news" pattern associated with major market events. Market participants, anticipating the ETF approval with a 90% probability, adjusted their portfolios accordingly before the SEC approval."

The research analyst also discussed with IBT Bitcoin's strength in Q4 2023 against its strength following the U.S. Securities and Exchange Commission's (SEC) approval of the spot BTC ETFs.

"During Q4 2023, BTC exhibited significant strength, with a price increase of 57%, reaching about $42,300 from $27,000 at the end of Q3. Post-approval, when BTC almost reached $49,000, investors seized profits on positions initiated at lower BTC price levels and began reallocating capital to altcoins, as evidenced by the decline in dominance over the past week," Greco said.

"This pattern is a common occurrence and does not signify a failure in the ETF launch. In the initial two days of trading, the 11 BTC Spot ETFs concluded with a cumulative inflow of approximately $1.4 billion, partially offset by a $600 million outflow from Grayscale Bitcoin ETF (GBTC). The net inflow totaled around $800 million," he further noted.

The analyst also explained Grayscale's GBTC and why it saw a significant amount of outflows during last week's trading.

"The GBTC outflow was facilitated as it was not a new product launch but a conversion from the existing Bitcoin Trust, holding over 600,000 BTC," Greco shared. "Due to the higher management fee set by Grayscale (1.5%) compared to most competitors (0.2%/0.3%), some investors opted to withdraw their investment from Grayscale, likely reinvesting in other BTC ETFs with more favorable management fees."

Bitcoin, the world's oldest crypto asset was trading down at $42,405.48 as of 9:44 a.m. ET on Monday with a 24% trading volume of $21.99 billion.

The crypto asset's latest price action represents a 1.10% dip in its value over the past 24 hours and a 5.97 loss over the last seven days.

Bitcoin's current circulating supply stands at 19.6 million and its market cap is at $830.61 billion, according to the latest data from CoinMarketCap.