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The price of Bitcoin, which was eagerly awaiting the approval of the spot ETF, has been on a downward trend since the approval of the ETF. It has fallen 9% over the past 10 days, leaving investors who were expecting a rise somewhat disappointed. Why is it deteriorating like this? Experts believe that the main factors are profit selling due to price increases and pressure to buy back the Grayscale Bitcoin Fund (GBTC). Selling for profit due to short-term increases is a factor that is perfectly acceptable to investors who are familiar with the stock market. This is because the price of Bitcoin, which was around 22 million won at the beginning of last year, tripled to over 63 million won at one point before and after it was approved. This part reminds me of the stock market saying, ‘Buy on the rumour, sell the news.’ Another is the redemption pressure of the Gradlwyd Fund. Grayscale was under severe financial pressure as new sales became difficult due to a lawsuit with the SEC (US Securities Commission). Accordingly, as the Grayscale Bitcoin Fund (about 38 trillion won) is now being converted into an ETF on the spot, downward price pressure is increasing due to a flood of redemption requests due to the demand for cash.
The focus is on the prospects for the future. There are various views, but the majority view seems to be ‘downward adjustment in the short term, medium to long term upward trend’. Let’s look at the plus and minus factors of Bitcoin price.
The first positive factor is the new demand from global investors following the approval of the Bitcoin ETF spot. As it is subject to being included in the portfolio of American institutional investors (about KRW 6 trillion), it can be said to be the biggest positive factor in the medium to long term. Even if only 1% is incorporated, as much as 600 trillion earned in new demand can be created. Among these, the new demand expected this year is as low as $50 billion and as high as $200 billion, and most believe that it is generally around $100 billion (KRW 130 trillion).
Second, the Bitcoin halving scheduled for April is also an upward factor. Bitcoin structurally reduces mining rewards (bitcoin payments) by half every four years. If the rate of increase in supply relative to demand falls, it will put upward pressure on prices. The last three halvings (2012, 2016, and 2020) also triggered a Bitcoin bull market each time. However, experts say that for about six months before and after the halving, Bitcoin holdings were sold to cover mining costs, which could be a factor in the price decline. In addition, it cannot be ignored that Bitcoin’s strengths as an ‘alternative asset’ are highlighted when the environment is uncertain, such as war or rising prices. In particular, Bitcoin can be said to be a much stronger alternative asset than gold, whose demand rises and falls depending on price fluctuations, in the sense that demand continues to increase in line with the structural trend of ‘digital acceleration’.
What are the disadvantages or risk factors? Firstly, how long will Gradlwyd’s redemption pressure last? It’s hard to predict, but given that Grayscale Fund GBTC’s Bitcoin purchase price range is around 20 to 30 million won, it is very likely that redemption requests will continue up to the low to mid 40 million won price range. In addition, the commission of GBTC is about 1.5%, which is much higher than the commission of other funds (0.2-0.5%), which also makes it possible to analyze that the pressure of redemption will continue for quite a long time. There are many opinions in the market that this will continue until about half of the Bitcoin volume held by GBTC (310,000, 18-19 trillion won) is released.
Second, it is a matter of litigation between the SEC and Coinbase, a leading virtual asset exchange in the United States. The SEC filed a lawsuit alleging that Coinbase traded 15 coins without reporting them even though they were ‘securities’, and it is said that the first court ruling will come out in about 5 to 6 weeks. If security properties are recognized, there is a possibility of bad news for Bitcoin, and if security properties are not recognized, there is a possibility of good news, but the situation is currently uncertain. Third, the fact that the SEC remains critical of virtual assets, including Bitcoin, is also a factor limiting the increase in new demand. The general view is that the reason the SEC approved the spot Bitcoin ETF was not because of a fundamental change in the perception of virtual assets, but because it lost a lawsuit against Gradlwyd in August last year. SEC Chairman Gensler’s interview in which he said, “Virtual assets like Bitcoin are risky assets, and the approval of ETFs does not constitute support for virtual assets” is also analyzed as a factor causing global asset management companies to delay before investing in Bitcoin.
So how can we talk about the factors that lead to the rise and fall? There are different opinions on the market, but the opinion of the majority is that the pressure for selling profits and buying back GBTC for the time being will be much greater than the new demand for Bitcoin (KRW 3.9 trillion as of January 18), including IBIT Blackrock. It is expected that there will be a downward trend for the next 1-2 months, and after the sale is digested, the price of Bitcoin will also turn up along with an increase in the sale of Bitcoin spot ETFs. If Coinbase wins the ‘securities’ lawsuit, the possibility of approval of the Ethereum spot ETF scheduled for May will increase, and in that case, synergy with Ethereum is expected to increase the prices of Bitcoin and Ethereum . In any case, as the price of Bitcoin rises, the demand from investors to allow Bitcoin spot ETF trading will intensify, so it is time for a detailed and swift policy response from financial authorities.
Reporter Gil Jae-sik osolgil@etnews.com
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