Unveiling the Causes Behind Bitcoin’s Plummet to $40K

The recent descent of Bitcoin (BTC) to $40K has created a challenging landscape for recovery, as bearish forces maintain control despite attempts at a bounce back.

Unveiling The Causes Behind Btc’s Plummet To $40k_65d5d13051ec6.webp

Bitcoin has witnessed a 4.4% decline over the past week, marking a 16% drop from its January 11th high of $48,500. As the cryptocurrency inches closer to the crucial psychological threshold of $39K, a discourse emerges on the potential continuation of the correction.

Exploring the recent downturn, one significant factor is the lackluster launch of the Bitcoin exchange-traded fund (ETF) after years of painstaking efforts by various providers. Despite approval from the US Securities and Exchange Commission earlier this month, the launch encountered obstacles. Prior to the expected confirmation, the agency’s X account was compromised, leading to a false tweet about the ETF approval. This misinformation triggered a bidirectional price spiral, resulting in substantial liquidation of leveraged positions worth millions of dollars.

Unveiling the Causes Behind Bitcoin's Plummet to $40K

On the official launch date, further disruptions occurred when the SEC took down the order link due to its publication during trading hours. Despite these challenges, Bitcoin experienced a significant price surge the following day, reaching its peak of around $48,500 in January.

However, it seems the ETF launch turned out to be a “sell-the-news” event, with insufficient ETF inflows to counteract selling pressure, an ongoing trend pushing BTC toward $40K.

The cryptocurrency markets had been on an upward trajectory without significant corrections before the recent decline, primarily fueled by anticipation of a spot BTC ETF approval. The price surged from around $26K in mid-October to a peak of $48,500 in January, representing an 86% increase.

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The Crypto Fear & Greed Index, a popular sentiment indicator, had been signaling an overheated market, consistently trending in higher numbers. On January 15th, it dropped to Neutral for the first time in three months after consistently residing in Greed or Extreme Greed, indicating excessive market enthusiasm.

Related: Bitcoin Price Signs Emerge on Daily Chart

With sellers dominating the past weeks, the question arises: when will the bulls make a comeback? Predicting Bitcoin’s price developments is challenging, but the impending halving in April presents a significant factor. This event will halve block rewards, reducing the fresh supply of BTC while also cutting its pre-programmed inflation. Historically, such halving events have preceded major bull markets, and many analysts believe this cycle will follow a similar pattern.

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