Although the U.S. Securities and Exchange Commission finally approved 11 spot bitcoin exchange-traded funds to start trading on U.S. exchanges in January, this has not been the bullish catalyst crypto investors hoped it would be. Bitcoin and other major cryptocurrencies have struggled over the past month after many generated big returns in 2023.

Bitcoin’s January weakness may be a sign that traders are taking profits in a sell-the-news trade following the launch of the spot ETFs. However, selling pressure unique to the popular Grayscale Bitcoin Trust (GBTC) may also be partially to blame for bitcoin’s weakness.

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January Crypto Market Performance

Bitcoin prices briefly jumped to new 52-week highs near $49,000 in January on the day the SEC approved spot bitcoin ETFs, but the world’s most valuable crypto ran out of steam in the second half of the month. Bitcoin prices dropped more than 1% overall in January, finishing the month at about $42,000. Ethereum (ETH) prices dropped 3% in January to close out the month around $2,245.

Among the 10 largest altcoins by market capitalization, Tron (TRX) was the best January performer with a 5% gain. Cardano (ADA) was the worst performer of the month, but it remains up nearly 67% overall in the past three months.

Bitcoin gained 156% in 2023, its best annual performance since 2020. Ethereum prices were also up 91% in 2023.

The total market capitalization of the global cryptocurrency market peaked at over $2.9 trillion in November 2021 but took a big hit during 2022’s “crypto winter.” That market cap has now rebounded to $1.6 trillion heading into February.

Spot Bitcoin ETFs Debut

On January 10, the SEC finally approved 11 spot bitcoin ETFs following years of repeated rejections. Investors have had access to SEC-approved bitcoin futures ETFs since late 2021, but the new spot ETFs are the first to invest in the cryptocurrency itself rather than cryptocurrency derivative contracts.

The following 11 SEC-approved bitcoin spot ETFs began trading on January 11:

• ARK 21Shares Bitcoin ETF (ARKB)
• Bitwise Bitcoin ETP Trust (BITB)
• Fidelity Wise Origin Bitcoin Trust (FBTC)
• Franklin Bitcoin ETF (EZBC)
• Grayscale Bitcoin Trust (GBTC)
• Hashdex Bitcoin ETF (DEFI)
• Invesco Galaxy Bitcoin ETF (BTCO)
• iShares Bitcoin Trust (IBIT)
• Valkyrie Bitcoin Fund (BRRR)
• VanEck Bitcoin Trust (HODL)
• WisdomTree Bitcoin Trust (BTCW)

What Bitcoin’s Spot ETF Approval Means for Investors

GBTC, which converted from a closed-end fund to an ETF following SEC approval, has just under $29 billion in assets under management. The new iShares Bitcoin Trust from BlackRock is the largest of the new spot bitcoin ETFs with around $2.8 billion in AUM.

Nigel Green, founder and CEO of deVere Group, says the launch of the spot bitcoin ETFs clears the way for institutional investors to dip their toes into the crypto market for the first time.

“This approval by the financial regulator of the world’s largest economy is a landmark moment for bitcoin and the wider crypto market and boosts prices in the long-term, even if there’s a sell-off in the near-term,” Green says.

“The approval of bitcoin ETFs represents a resounding institutional validation of the cryptocurrency, marking a departure from its initial reputation as a speculative and volatile asset.”

Ben Weiss, CEO and co-founder of CoinFlip, says the spot bitcoin ETF approval was a big step in improving access to bitcoin, but it didn’t alter the long-term bitcoin bull thesis.

“This ETF approval didn’t fundamentally change what those in the space have already known for years: Bitcoin is here to stay.  Whether it’s cross-border payments for those left behind by the traditional financial system or bringing transparency to complex supply chains, crypto and the blockchain will continue to shape our world,” Weiss says.

Spot Bitcoin ETFs and the SEC

Crypto investors may have cheered the launch of the new spot ETFs, but the SEC once again warned investors about the dangers of cryptocurrency investing.

“While we approved the listing and trading of certain spot bitcoin [exchange-traded product] shares today, we did not approve or endorse bitcoin,” SEC Chair Gary Gensler said in a statement.

“Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”

GBTC Liquidations

One dynamic that has pressured bitcoin prices since spot ETFs were approved on January 10 is the seemingly relentless bitcoin selling pressure on the Grayscale Bitcoin Trust.

The GBTC fund held more than 630,000 BTC at its peak, or about 3% of the world’s total bitcoin. However, in the first nine days following the conversion of the trust from a closed-end fund to a spot ETF, GBTC experienced more than $4 billion in outflows.

Part of GBTC’s selling pressure is coming from arbitrage traders who bought GBTC when it was trading at a steep discount to its net asset value and are now closing out their positions.

However, a number of estates from companies that went bankrupt during the 2022 crypto winter also still hold stakes in GBTC that are likely to be liquidated in 2024. Failed crypto exchange FTX sold roughly 22 million shares of the GBTC fund, or about $1 billion worth, in January 2024 following the fund’s conversion to a spot ETF.

Bitcoin Magazine estimates bankruptcy estates held roughly 15.5% of the total shares of the GBTC fund prior to its conversion. Those shares represent a total of about 80,000 BTC, and it’s unclear how many of these shares have already been liquidated or will be liquidated soon. FTX has reportedly already sold its entire GBTC stake.

Is a Spot Ethereum ETF Imminent?

Ethereum investors have been hopeful that SEC approval of spot bitcoin ETFs means approval for the first spot ethereum ETFs could be right around the corner. However, on January 25 the SEC delayed a ruling on proposed spot ethereum ETF applications from Grayscale and BlackRock.

Analysts at TD Cowen anticipate the SEC will not approve the first spot ethereum ETF until at least late 2025. The firm expects the SEC to continue to take a slow, deliberate approach to opening up Wall Street to cryptocurrency, and regulators will likely want to observe the recently launched spot bitcoin ETFs for a while before expanding to other cryptos.

In the past six months, the Grayscale Ethereum Trust (ETHE) has risen 82% in price, outpacing the 21% gain in ethereum prices in that time as investors flocked to take advantage of the fund’s discount to its NAV. The ETHE fund’s discount to NAV has shrunk from more than 40% as recently as June 2023 to around 10% today.

Sebastian Heine, head of risk and compliance at Northstake, says trading action in ETHE suggests the market appears to be pricing in an eventual conversion of the fund to a spot ETF, but the trust’s remaining discount to NAV indicates investors aren’t 100% certain if and when that conversion will occur.

“The recent reduction in the ETHE discount suggests a strategic shift among institutional investors—more investors are buying the product as opposed to selling it. The ultimate expectation for ETHE in the case of an ETH ETF approval is that the ETHE investment fund will be converted to a spot ETH ETF, similar to what we have seen with the Grayscale Bitcoin Trust (GBTC) product,” Heine says.

Other Crypto Headlines

In January, the U.S. Treasury Department joined regulators from the U.K. and Australia by levying additional sanctions against currency exchanges used by terrorist organization Hamas to transfer millions of dollars worth of cryptocurrency.

The Treasury Department report singled out Gaza-based financial facilitator Zuhair Shamlakh and his family, accusing them of facilitating the transfer of tens of millions of dollars from Iran to Hamas by utilizing cryptocurrency and other means.

Terraform Labs, the company behind failed stablecoins TerraUSD and Luna, officially filed for Chapter 11 bankruptcy protection on January 21.

Terraform co-founder Do Kwon, who owns 92% of the shares of the company, is currently in prison in Montenegro following a conviction for forging documents. Kwon is also awaiting extradition to either the U.S. or his home country of South Korea. He faces fraud charges in both countries.

A new report from the Financial Industry Regulatory Authority, or FINRA, said 70% of cryptocurrency advertisements by brokerages may violate regulatory rules requiring fair, balanced and truthful communications with the public.

FINRA said it examined communications of 17 brokerage firms offering digital coins to customers and found a number of potential rules violations, including inaccurate comparisons between crypto and equities, false claims that crypto works like cash and “unclear and misleading explanations” about federal protections for crypto assets.