Bitcoin (BTC) has experienced a 6.7% drop after almost reaching $72,000 on May 21, settling at $67,100. This decline does not necessarily signal a bearish trend, as Bitcoin is still only 8.7% below its all-time high. However, investors are puzzled why the recent inflows into Bitcoin spot exchange-traded funds (ETFs) haven't sparked more bullish sentiment.

Distribution of assets by the failed Mt. Gox exchange estate

Data from Farside Investors reveals $1.96 billion in net inflows into U.S. spot Bitcoin ETFs since May 15, equivalent to 64 days of BTC issuance from miners. Notably, the U.S. spot Bitcoin ETF market has now exceeded $50 billion in assets under management. In comparison, U.S. gold ETFs hold about $118.5 billion, according to the World Gold Council.

Moreover, inflows into spot Bitcoin ETFs typically prompt the withdrawal of Bitcoins from exchanges, which has dropped to its lowest level since March 2018—2.3 million BTC, as per Glassnode data.

Although there's no certainty these coins will be sold in the near term, their transfer to cold storage and custodians outside of exchanges usually reduces market liquidity. This issue becomes more pronounced in bull markets, where thinner order books at higher price levels can amplify price movements due to aggressive buying.

Consequently, if institutional investors continue to acquire Bitcoin through ETFs yet the price keeps falling, it's likely that selling pressure originates from the regular spot markets. It's suggested that the movement of 141,686 BTC by the bankrupt Japanese exchange Mt. Gox on May 28 indicates an imminent asset distribution to its creditors, ahead of the scheduled deadline on October 31.

Over $9.4 billion worth of Bitcoin is owed to about 127,000 creditors of Mt. Gox, who have been waiting for over a decade since the exchange's collapse in 2014 due to multiple hacks. Despite the short-term negative impact on Bitcoin's price, Anndy Lian, an intergovernmental blockchain expert, believes that repaying this debt will resolve a longstanding issue and permanently remove the associated uncertainty.

Regulatory uncertainty and the anti-crypto lobby

Among the reasons prompting Bitcoin holders to cash out above $67,000 is the regulatory uncertainty in the United States. The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission have taken legal actions against leading exchanges and intermediaries, including Binance, Coinbase, Kraken, KuCoin, and Robinhood.

Additionally, the U.S. Department of Justice has levied charges against the co-founders of Tornado Cash and the developers of Samourai Wallet for money laundering, as well as against Roger “Bitcoin Jesus” Ver for allegations of tax evasion and fraud dating back seven years. Although these events do not directly affect Bitcoin, they tarnish the industry’s image, making it less appealing to institutional investors.

Related: 3 solid Bitcoin indicators predicting BTC price rise to $75K in June

This issue extends beyond the U.S. For instance, Hong Kong’s Securities and Futures Commission has issued an ultimatum to cryptocurrency exchanges that have not yet registered to operate in the area. As of May 31, only 18 exchanges have applied for a license, with major players such as OKX, Huobi, and Gate opting out due to the stringent regulatory requirements imposed by Hong Kong.

In addition to ongoing legal challenges and Wells notices, there's a persistent political backlash against cryptocurrencies. On May 29, U.S. Senators Elizabeth Warren and William Cassidy addressed a letter to the Drug Enforcement Administration, claiming that cryptocurrencies have "played an increasingly prominent role" in the fentanyl trade. Senator Warren has previously faced criticism for using unreliable data in discussions about terrorism.

These factors, together with the potential impact on cryptocurrency intermediaries and the possible selling pressure from the distribution of Mt. Gox coins do not set a definitive upper limit for Bitcoin at $70,000 or similar levels. It remains to be seen whether spot ETF investors will maintain their positions as the U.S. debt continues to escalate. For now, the market appears to be under bearish control in the short term.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.