After last year’s gains, the entire crypto community was waiting with bated breath to see how Bitcoin would kick off the new year, with hopes running high for a new bull run to take the asset to record values. In a way, the crypto king didn’t disappoint and got off to a strong start, going from $42,000 to $45,000 in just one day. The Bitcoin price climbed to a 21-month peak, soaring above $45K on Tuesday, January 2nd, for the first time since April 2022.
Unfortunately, it was but a brief moment of glory for Bitcoin given that, in less than 24 hours from the surge, it plummeted by 7.3% to reach $40K, before going back up to $43K. Those who want to add the asset to their portfolio can buy Bitcoin from Binance at $43,230. It’s the steepest decline that Bitcoin has experienced in almost four months and it surely caused a bit of a stir in the crypto landscape, coming at a time when most analysts had a rather positive outlook for the flagship coin.
This wasn’t the scenario that crypto enthusiasts were expecting, but in the highly volatile crypto market, very few things fall in line with expectations. So, what conclusions can we draw from this sudden movement and what could happen in the weeks and months to come?
A flash crash that could spell good news for crypto
First of all, it’s important to note that Bitcoin wasn’t the only crypto to suffer a considerable dip in the first days of the year. Other major coins followed in its footsteps and took a nosedive over the same period. Ethereum the second-largest crypto by market cap and the leading altcoin, dropped by more than 7% to under $2,200. Similarly, Solana lost over 15%, while XRP fell by over 10%. There were also a few exceptions, with several coins including Avalanche (AVAX), Injective (INJ) and Optimism (OP) going against the trend and registering gains.
As usual, Bitcoin sets the trend and the rest of the coins in the market follow its lead. Nevertheless, the fact that the price slump affected the market at large does nothing to calm the spirits or provide reassurance. On the contrary, these unfortunate developments threaten to dissipate the little enthusiasm and optimism that the market has regained in the past months since Bitcoin went on its price appreciation rally.
But as concerning as this sudden drop may be, it might not be such a bad thing after all. First, we have to understand why Bitcoin’s upsurge came to a halt when so many analysts were confident it would only go up from here. There are various theories that could explain the rise and decline that Bitcoin has seen in these past few days.
One potential explanation is that Bitcoin is following its usual bull cycle pattern. In the past, every Bitcoin bull run has been riddled with short-lived but precipitous declines. This serves as a reminder that price corrections are a natural part of Bitcoin’s evolution and they’re bound to happen at some point. It’s normal for the market to readjust itself to more realistic values after a sustained price rally, and that’s probably what happened in this case.
The decline came after a three-week consolidation period, ending December with a 12% gain. Moreover, Bitcoin has been on a continuous upward trend since October, going from $26K to almost $45K in this timeframe. Although cryptocurrencies have shown signs of stability recently, suggesting a maturing market, volatility is still a big part of the picture. Therefore, it would be unrealistic to expect Bitcoin to go on an uninterrupted winning streak, without occasional drawbacks.
It’s also possible that Bitcoin’s initial flying start to 2024 was simply a consequence of the usual New Year enthusiasm that took over the crypto community. Once the excitement and elation started to fade away, the leading crypto took a step back.
Regardless of the factors that caused Bitcoin to lose part of its recent gains, the pullback could be interpreted as a positive development, eliminating excessive leverage and helping pave the path for more sustainable growth, which is exactly what Bitcoin needs in order to surpass its former highs.
The SEC is yet to decide on spot Bitcoin ETFs
Bitcoin’s shaky price action could also be attributed to the speculations regarding the arrival of the first-ever spot Bitcoin ETF. Ever since leading global asset management company Blackrock filed an application for a spot Bitcoin exchange-traded fund with the U.S. Securities and Exchange Commission (SEC), this has been the main topic of discussion in the crypto space and also the event that fueled Bitcoin’s price increase.
Blackrock’s proposition led to a flurry of similar filings from other major asset management firms like Fidelity, VanEck, WisdomTree, and Grayscale who decided it was time to enter the race for a spot Bitcoin ETF, creating even more hype in the market.
The approval of a spot Bitcoin ETF would provide investors with more direct exposure to the asset and would also give Bitcoin more legitimacy, pushing digital currencies further down the path to mainstream acceptance.
As we’re getting closer to the decision date, anticipation is growing leading to increased volatility. While many are confident that the SEC will give the seal of approval for at least one of the applications, others point out that the regulator has rejected all previous propositions in this respect and it’s likely to maintain its adamant approach. With opinions being divided, speculation and uncertainty are bound to make Bitcoin even more unstable.
Wrapping up
For the moment, Bitcoin has managed to maintain its position above the $40K threshold, which is a critical aspect for further appreciation. With the price bouncing back to $43K, one shouldn’t read too much into Bitcoin’s sudden slump. If anything, we should be ready to see even more volatility in the months to come as this year is shaping up to be full of interesting developments.
