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Bitcoin Hits Seven-Week Low Amidst Regulatory Uncertainty

Bitcoin's descent to a seven-week low reflects the challenges and uncertainties surrounding the regulatory landscape.

Tue, 23 Jan 2024, 09:00 am UTC

Bitcoin experienced a significant drop to a seven-week low on Monday, slipping below the $40,000 mark for the first time since the rollout of 11 spot Bitcoin exchange-traded funds (ETFs) on January 11. The world's largest cryptocurrency saw a 3.98 percent decline, trading at $39,938.00.

Reuters reported its lowest level since December 4, following a brief recovery. Ether, the second largest cryptocurrency, also suffered a 6.37 percent drop, settling at $2,328.30.

Regulatory Factors Hit Bitcoin

The Inquirer noted that Bitcoin's recent rally, fueled by growing anticipation of the U.S. Securities and Exchange Commission's (SEC) approval for Bitcoin ETFs, has been met with disappointment. The SEC's expected endorsement would have opened doors for new investors to enter the cryptocurrency market.

However, Bitcoin's upward trajectory, which saw gains of around 70 percent since August, has encountered a setback after a federal court compelled the SEC to reevaluate its dismissal of Grayscale Investment's Bitcoin ETF application.

While some analysts anticipated a correction in Bitcoin's gains, others believe this decline may pose challenges in the face of traditional stock markets. The S&P 500 benchmark index reached new record highs, driven by the success of semiconductor and other tech stocks.

Antoni Trenchev, co-founder of crypto lender Nexo, noted that Bitcoin investors seemed to be struggling while traditional financial markets enjoyed an easier ride to a more leisurely highs. Trenchev drew parallels to major crypto events, such as Coinbase's initial public offering and the launch of Bitcoin futures, followed by similar declines in Bitcoin's value.

Bitcoin faced additional pressure from outflows in Grayscale Investment's Bitcoin trust. The conversion of this trust into an ETF, following the SEC's approval of other Bitcoin ETF products earlier this month, resulted in significant selling.

FTX, which faced bankruptcy in 2022, sold approximately 22 million shares worth close to $1 billion in the ETF. The increased selling activity added to the downward pressure on Bitcoin.

The Impact of Regulatory Uncertainty

Uncertainty surrounding regulatory decisions and the potential approval of Bitcoin ETFs have created a challenging environment for Bitcoin. Investors find themselves in a situation reminiscent of running up a descending escalator as traditional financial markets celebrate new record highs.

The difficulties faced by the cryptocurrency indicate the need for stability and clarity in the regulatory landscape.

Bitcoin's recent decline highlights the need for caution and vigilance in the cryptocurrency market. While Bitcoin ETFs' potential remains promising, market participants must navigate varying regulatory landscapes and anticipate potential market corrections.

Photo: Kanchanara/Unsplash

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