BTC Sell-Off Likely to Continue Despite Historic Bitcoin ETF Inflows

GBTC selling will continue to impact the Bitcoin price until the end of Q1 as traders take profit. This will likely send BTC as low as $35k.
BTC Sell-Off Likely to Continue Despite Historic Bitcoin ETF Inflows
In: Bitcoin, Analysis

Unless you've been living under a rock you should know that the Bitcoin Spot ETFs were finally approved 11 days ago, after 10 years of attempts and multiple lawsuits against the SEC. So far the ETFs have been live for a total of 6 trading days, but this is set to be our first full week of trading. During this period the price of Bitcoin has declined from $49k to just above $40k and this can be partially attributed to GBTC outflows. GBTC was a trust before it converted to an ETF and held more than 600,000 BTC, making it the largest regulated Bitcoin fund in the world. It was one of the only ways that U.S. stock traders could gain exposure to BTC's price movements without actually purchasing and holding the underlying asset. Since the ETF approval, some GBTC traders have been taking profit and exiting the market completely because it was trading at a large discount to the actual Bitcoin spot price, due to uncertainty around whether it would ever convert to an ETF. Others are rotating to other funds with more competitive fees; GBTC charges 1.5% while Blackrock only charges 0.12% for example. Then there are a number of bankrupt entities including FTX and Celsius that are forced to offload and would account for a large percentage of the selling.

Source: Bitmex Research

While inflows for non-GBTC funds have been both impressive and record setting, with Bitcoin ETFs surpassing silver ETFs to become the 2nd largest commodity ETFs after gold, it has largely been negated by the GBTC outflows. The question one should be asking is how long until the inflows run out of steam? Much of what we have seen come in is simply a rotation from existing Bitcoin investment vehicles such as the futures ETFs. Once the initial launch excitement dies down, inflows will likely drop off for now.

Source: Bitmex Research

GBTC on the other hand, still holds 566,970 BTC at the time of writing. While it won't all be sold, I would expect that we probably see continued selling until at least the end of Q1. Once the market is convinced that the selling has stopped, that's when we can expect a return to a bullish trend.

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Bitcoin is Following a Historical Pattern

While many were expecting the ETF approvals to spur a price surge above $50k, one simply had to look at Bitcoin's historical price performance to know the odds of this happening were slim. The price has never retraced past the 61.8 fibonacci level of the previous drawdown pre-halving. As you can see on the chart below, the price touched this level perfectly before the sell-off began. Those who follow me on TradingView or Twitter got a heads up about this, and had the opportunity to prepare to offload some BTC at this level. I will do more of a deep dive into this phenomenon and the Bitcoin 4 year cycle in my monthly Insider Report for premium members.

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Upcoming BTCUSD Trade Setup

I expect price will continue to decline as a result of Grayscale's continued selling and the fact there has been no major correction since the ETF anticipation rally started last year. For those of you looking to trade this downward move, the 1D Ichimoku cloud gives us a clear entry and exits. You would want to enter when price drops below the support at $40k or when the 1D candle closes inside the cloud. Typically the price will then travel toward the other side of the cloud; this is called an edge to edge trade. The target could vary depending on when we enter the cloud, so I have marked out areas of support at around $37.5K and $35k.

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Further it is worth noting that the $35k level is an area of confluence with the 161.8 extension of whatever formation we are in now and a yearly pivot. This is my ideal target area but its always good to take some money off the table at the earlier target of $37.5k, incase price does not reach the final target.

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