- Bitcoin price dropped 8% to $40,550 as optimism faded for approval of a spot bitcoin ETF this week. Over $400 million in positions were liquidated during the downturn.
- The price decline erased gains made since January 1. Open interest also fell by $2 billion due to liquidations and reduced exposure on both sides.
- Passage of a spot bitcoin ETF is looking less likely now. Weakness in crypto mining stocks and U.S. crypto stocks also signaled fading optimism. Approval expectations had boosted bitcoin’s price, so diminished prospects are equally damaging.
The price of bitcoin fell 8% today as optimism around the approval of a spot bitcoin ETF began to fade. Over $400 million worth of positions were liquidated across derivatives exchanges during the sharp downturn.
Price Chart Shows Retracement of Recent Gains
Bitcoin reached a morning high of $45,500 before sliding to a low of $40,550. It has since bounced back to around $42,200. The slump erased the entire upside move that occurred on January 1.
Liquidations and Reduced Exposure Drive Down Open Interest
Open interest fell by $2 billion due to liquidations, the declining value of bitcoin, and traders scaling back exposure on both the long and short side.
Passage of Spot Bitcoin ETF Looking Less Likely
“The likelihood of the ETF’s passage became less and less likely, and the market saw a stalemate,” said options analyst GreeksLive. Weakness in crypto mining stocks and crypto-related U.S. stocks also signaled fading optimism.
Last week, Reuters reported an ETF could be approved Tuesday or Wednesday. But Matrixport said all applications likely fall short of SEC requirements, and it expects rejections this month.
Bitcoin Price Remains Correlated to ETF Hopes
The sharp downturn in bitcoin’s price shows it remains tightly correlated to expectations around an ETF. While an approved ETF could boost prices, diminished prospects are equally damaging. For now, uncertainty persists around if and when a spot bitcoin ETF will finally gain approval.
