Bitcoin has plunged below the critical threshold of $40,000, marking a significant downturn in the cryptocurrency’s value.

Bitcoin was trading at $39,640 as of press time, down 18% from its peak of $49,000 earlier in January.

The decline to around $40,000, Bitcoin’s lowest level since mid-December of the previous year, has been driven by a sustained sell-off amid a series of macroeconomic and market-specific factors.

Dollar headwinds

A key contributor to Bitcoin’s recent woes is the unexpectedly robust U.S. economic data, which has led to a tempered outlook for rate cuts by the Federal Reserve.

This situation has bolstered the U.S. bond yields and the U.S. Dollar Index (DXY), creating substantial headwinds for cryptocurrencies at large.

The U.S. interest rate futures market is still pricing in a near 50% chance of a 25-basis point rate cut in March, despite recent data and Federal Reserve policymakers suggesting otherwise. This dynamic poses potential macroeconomic challenges for Bitcoin.

The approval of several spot Bitcoin ETFs in the U.S. has also played a key role in the volatility. While these ETFs initially drew significant capital inflows, they also triggered a “sell-the-news” reaction, contributing to the bearish momentum.

GBTC outflows

Notably, Grayscale’s Bitcoin Trust (GBTC) experienced substantial outflows, with 52,800 BTC sold since its conversion to a spot ETF, reflecting both a shift towards new investment products and profit-taking activities.

According to recent reports, FTX has sold $1 billion worth of GBTC shares since it was converted to an ETF, making up a significant portion of the total outflows. The defunct exchange has sold-off almost the entirety of its holdings as of Jan. 22, which could lead to a reduction in the recent recent sell pressure.

Despite the heavy sell-off, the nine newly launched ETFs have accumulated more Bitcoin than Grayscale has sold over the same period, as their assets under management hit $4.1 billion within six days of trading.

The “Newborn Nine” had purchased 95,000 BTC as of Jan. 20, led by BlackRock and Fidelity’s ETFs — the two make up over 50% of the collective $4.1 billion in assets under management.

CyptoRanking research revealed that the selling pressure was further compounded by short-term holders and traders selling their positions after the ETFs were approved — confirming a “buy the rumor, sell the news” event. Additionally, whales have been securing profits on their holdings after 12 months of gains.

Assad Jafri

AJ, a passionate journalist since Yemen's 2011 Arab Spring, has honed his skills worldwide for over a decade. Specializing in financial journalism, he now focuses on crypto reporting.

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