BTC Starts the Week Stable, but Grayscale Bitcoin Trust Redemptions Point to Coming Turbulence

BTC Starts the Week Stable, but Grayscale Bitcoin Trust Redemptions Point to Coming Turbulence

 Published: February 6th, 2024

Bitcoin’s recent price rise looks to have stalled going into this week’s trading session, potentially signaling the start of an unsettled period for the world’s biggest crypto by market cap.

Figures from CoinGecko recorded a less than one per cent increase on Monday when it peaked at USD 43,233. Last week, however, BTC was the singular focus for investors with big crypto holdings. A report from CoinShares shows inflows to crypto investment products totaled USD 708 million as of Friday, 2nd February. That raised year-to-date inflows to USD 1.5 billion and total crypto assets under management globally to USD 53 billion.

Almost all of the inflows (99 per cent) went into BTC-related instruments. Good news for Bitcoin bulls, but there are signs that stormy weather may be on the horizon.

Also on Friday, defunct crypto firm Genesis made a legal request to liquidate USD 1.4 billion in Grayscale Bitcoin Trust (GBTC) shares. GBTC recently converted from a restricted fund that only accredited investors could access, to a spot Bitcoin ETF. The change means any shares that were once locked down can now be traded.

If Genesis gets the go-ahead from the courts to offload its GBTC holdings, it could create more selling pressure if other investors perceive a rising wave GBTC redemptions. An estimated USD 5.7 billion in GBTC holdings were sold off in January 2024, likely explaining how quickly the buzz arising from the SEC’s long-awaited Bitcoin ETF approval dissipated after trading kicked off.

This week’s biggest winner thus far is altcoin Chainlink (LINK), changing hands at USD 19.52 at time of writing, an 8 per cent rise over 24-hours. Over the previous seven days, LINK has risen by close to 36 per cent.

BTC's road to respectability

In October 2022, analysts noted that Bitcoin had begun to shed its reputation as an asset marked by extreme ups and downs. Data from blockchain analytics firm Kaiko showed BTC's 20-day volatility tracked closely to the NASDAQ for the first time in nearly 24 months.

In an unexpected swapping of roles, Bitcoin’s price remained stable from the beginning of September 2022. The NASDAQ and the S&P 500 dropped by 12 per cent and 11 per cent respectively in the same period.

Bitcoin’s price has historically been correlated with technology stocks, though with a higher ‘beta’ (propensity for volatility) than other financial assets. Despite the impressive gains posted in 2021, its high beta rating has kept many investors from using it as safe-haven asset. Despite a price plunge in June 2022, BTC and other major cryptos were some of the best-performing assets in Q3-22, after the mighty Greenback.

Bitcoin’s price did drop back to lows last seen in 2020 in early October, after core US inflation topped another 40-year high. Both BTC and equities fell on the news, before quickly bouncing back to their previous ranges.

The previous plunge seen in June 2022 followed the release of American inflation data for May, which showed consumer prices rising at a burning hot rate of at 8.7 per cent. Investors saw it as a sign that the Federal Reserve wouldn’t be altering its aggressive policy course any time soon, prompting a risk-off move that shifted money away from riskier assets.

However, while high inflation has held firm for months, crypto’s price action avoided lurching up or down with subsequent updates to the consumer price index (CPI) inflation measure. Stocks, on the other hand, were in slow-but-steady decline.

BTC’s stability was all the more notable given the hawkish stance taken by central banks worldwide, which turned many bonds into an opportunity for rapid gains. As Reuters reported in September 2022, Fed policy had sent bond yields skyrocketing.

Bloomberg crypto analysts noted in an October blog that Treasury market volatility had been much higher than Bitcoin volatility in the third quarter. At the time, volatility in stock prices hit all-time highs when compared to price moves for Bitcoin.

With global assets demonstrating weakness against the dollar across the board, even the UN asked the Fed to ease off on further rate rises. Washington’s central bankers were cool to the idea.

BTC reclaims its dominance

In June 2023, Bitcoin’s market capitalization stepped once again over the 50 per cent line, making its footprint bigger than all other cryptocurrencies combined.

An analysis by Trading View said that BTC had crossed the halfway mark on Monday, 19th June. It was the first time since April 2021 that Bitcoin had claimed the majority of the market on its own. Back then, Bitcoin’s price started falling when

China announced its complete ban on crypto mining and fell further when Tesla cooled its previous enthusiasm for the asset due to carbon footprint concerns.

BTC dominance last came close to the halfway metric in May 2022 when the entire crypto market fell on news of sticky high inflation in the USA, which prompted robust monetary tightening from US central bankers.

While Bitcoin fell sharply at the time, number-two coin Ethereum (ETH) fell harder, taking the ETH/BTC pair southward to a measly 0.05 ratio.

Stern regulatory action has likely also made BTC a sturdy alternative to altcoins like Solana and Cardano, which the SEC has labelled ‘unregistered securities’. Amid a flurry of enforcement actions and lawsuits recently, SEC chairman Gary Gensler has said that he sees Bitcoin as a commodity.

In its high-profile lawsuit against leading crypto exchange Binance, the SEC also labelled the firm's native token BNB a security. The token was previously the fourth largest crypto by market cap, but has lost more than 20 per cent of its value since the start of June 2023.

TradingView’s BTC dominance metric has been criticized in the past for under-counting Bitcoin’s true market share since it includes stablecoins in the calculation. Critics say stablecoins aren’t ‘real’ cryptos, basically just US dollars reformatted to trade on a blockchain.

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