This week’s market observation essay: Bitcoin ETF passes, how long will it continue to fall?

Last week, it was mentioned that the meme craze has a high probability that the currency market will fall. In conjunction with the Bitcoin spot ETF Sell The News, this conjecture was also confirmed this week. Bitcoin fell by 6.6% in 7 days, and Ethereum fell by 12.5%.

The "Sell The News" phenomenon is very common in capital markets. It describes the rise in asset prices, leverage and market sentiment before a bullish event, but the price often falls quickly after the event.

As for the main reason for the decline, the market blamed the redemption of Grayscale GBTC.

Grayscale's GBTC business was listed in 2013, which means that investors' Bitcoins have been trapped in Grayscale for more than 10 years and cannot be redeemed. A large number of Bitcoins have been accumulated. The market has picked up recently and the negative premium has gradually been eliminated. At this time It is only human nature to choose to redeem GBTC to take profits.

As you can see in the chart below, Grayscale has a net outflow of about US$500-600 million every day, with a total outflow of US$4.3 billion in less than 10 days after listing. It is also the only fund among the 11 listed BTC ETFs to have a net outflow . However, it has slowed down recently, with an outflow of US$428 million on 1/24.

The author subjectively believes that the impact of grayscale market crashes will decline over time:

  1. As mentioned earlier, GBTC outflows have slowed.
  2. Grayscale's crazy selling is a fact, but other BTC ETFs all have net inflows of funds, and the total inflow of the overall 11 ETFs is greater than the outflow. Is the market decline really due to Grayscale's crazy selling? To be discussed.
  3. According to the well-known media "Coindesk", FTX is also an investor in GBTC, and the bankruptcy reorganization team has sold nearly 22 million shares of GBTC (approximately US$1 billion), holding zero GBTC shares, which is expected to slow down the selling pressure.

However, there are still potential negative factors in the market:

  1. GBTC is expected to continue to outflow, and whether the inflows of other 10 ETFs can support the selling pressure will be the focus next. It is expected that within the next two months, Mt.GOX will release 200,000 Bitcoins to original holders.
  2. December 2023 - Mt. Gox's creditors received compensation in Japanese yen via PayPal. Most Mt. Gox creditors originally purchased Bitcoin for less than $1,000.
  3. From November 2020 to 2022, the U.S. government seized a total of 207,189 Bitcoins in three operations, including those related to the Darknet Silk Road black market, hacker Jimmy Zhong, and hackers of the cryptocurrency exchange Bitfinex. They announced plans to sell the illicit Bitcoins in four tranches.

Review of key industry news this week

CME Fed Watch: The probability of keeping interest rates unchanged in February is 97.9%

According to CME Fed Observation: The probability of the Fed keeping interest rates unchanged at 5.25%-5.50% in February is 97.9%, and the probability of cutting interest rates by 25 basis points is 2.1%; the probability of keeping interest rates unchanged by March is 52.9%, with cumulative interest rate cuts The probability of 25 basis points is 46.2%, and the probability of cumulative interest rate cuts of 50 basis points is 1.0%.

Ethereum Foundation: If Sepolia and Holesky are successfully upgraded, the Cancun upgrade will be deployed to the Ethereum mainnet

The Ethereum Foundation said Sepolia and Holesky will be upgraded within the next two weeks. Dencun will be launched on Sepolia at epoch 132608 (January 31, 6:51) and on Holesky at epoch 29696 (February 7, 19:35). Once all testnets are successfully upgraded, the Cancun upgrade will be deployed to the Ethereum mainnet as planned.

EigenLayer extends the re-staking window to February 6th to February 10th and removes caps for all LST

Ethereum re-staking protocol EigenLayer tweeted that it will introduce three new LSTs in the EigenLayer re-staking ecosystem: sfrxETH, mETH and LsETH, and cancel the 200,000 ETH personal limit for LST.