Why did Bitcoin fall in price despite the ETF wave?

Peaking at $49,000 in minutes when the ETF was approved, Bitcoin price quickly retreated to the $42,000 zone due to the "buy on rumor, sell on news" strategy.

Around 7am today, Bitcoin fell below $42,000, then edged up but is still in a fluctuating trend.

Earlier on January 12, a day after Bitcoin ETFs were approved in the US, the price of this cryptocurrency also fell below $42,000, losing nearly 10% in 24 hours as the market recorded a major sell-off. This decline erased all the profits investors earned since the end of last year until now.

When news of a Bitcoin ETF broke, the market price jumped to a two-year high of around $49,000. But the peak only lasted a few minutes before quickly fading. Shares of Coinbase, the exchange that provides crucial custody services to most ETF issuers, lost 7.4% of their market value over the weekend. Bitcoin mining companies like Marathon Digital, Hut 8, and Riot Platforms all fell at least 10%.

Bitcoin’s price action contradicts the series of scenarios written by many experts and analysts about the market’s continued excitement after recording an important milestone. However, according to CoinDesk , the current drop may not be too surprising.

Market research firm CryptoQuant predicted last month that Bitcoin could fall as low as $32,000 next month after ETF approval, a result of the “buy the rumor, sell the news” market.

"Buy the rumor, sell the news" is a strategy in which investors buy assets when there are positive rumors about the market and hold them with the belief that the price will increase in the future, until the official information is announced to take profit. This is not the first time that the cryptocurrency market has recorded this trading trend.

In early 2021, rumors emerged that the Coinbase exchange would IPO on Nasdaq (USA). At that time, Bitcoin price rose to the range of 55,000-58,000 USD per unit. By mid-April 2021, Coinbase was officially listed, Bitcoin reached its highest intraday price of more than 64,800 USD but quickly fell sharply due to the market sell-off. About two months later, the market price dropped to the range of 31,000-33,000 USD, or more than half. A similar development was also recorded in October 2021 when ProShares' Bitcoin ETF based on futures contracts was launched.

In addition, investors' expectations for a similar ETF for Ether are also the reason for the Bitcoin price to plummet . Recently, many people have switched to using Ether and withdrawing capital from Bitcoin because they believe that good news will also come to this second largest cryptocurrency. Last weekend, the Ether market price reached its highest level since May 2022.

Alex Saunders, an analyst at Citi, told CNBC that the cryptocurrency market has “moved to the next story,” with Ether outperforming Bitcoin, possibly due to expectations that an ETF for the second-largest token will also receive approval. The U.S. Securities and Exchange Commission (SEC) is expected to make a decision on spot Ether ETFs starting in May.

After the recent price drop, many continue to expect ETF approval to be a catalyst for the market, but it may take time to take effect as new users of cryptocurrencies become more familiar with the asset and participate more actively. "The potential for Bitcoin to be included in investment portfolios will become more prominent, although the introduction of this cryptocurrency into investment portfolios is still very far away," said an expert from Citi Group.

Xiao Gu (according to CoinDesk , CNBC )

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