(Kitco News) – With just over two weeks since the approval of 11 spot Bitcoin ETFs and millions of inflows, the price of Bitcoin is down around 14% off its recent highs. However, a bigger risk for the world’s largest cryptocurrency is a market selloff triggered by a bad recession, according to Gareth Soloway, Chief Market Strategist at VerifiedInvesting.com.
Following the spot Bitcoin ETFs approval by the U.S. Securities and Exchange Commission, assets under management (AUM) of those funds beat that of silver ETFs. More specifically, AUM of Spot Bitcoin ETFs is currently at around $25 billion, while silver ETFs are at about $11.5 billion in assets. The only commodity ahead of Bitcoin is gold, with approximately $96 billion in assets.
Despite opening the door to institutions and more general investors, Bitcoin experienced a significant drop from a recent peak of around $49,000. At the time of writing, Bitcoin was trading at $41,953.
Soloway, who correctly forecasted a “sell on the news” event for the approval of spot Bitcoin ETFs back in October, told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News, that it is all about previous Bitcoin trading patterns.
“If we go back to the 2017 Bitcoin bull market high — that was when the futures basically debuted,” Soloway said. “There was a lot of hype that took us up into that news. And that was the high of the cycle. If we go to the first high in 2021, that was the IPO of Coinbase. And that marked the high. These big news stories create so much hype and the top in Bitcoin.”
The breakdown of the ETF inflows and outflows reveals additional information on what has been happening in the market.
BlackRock and Fidelity have dominated the Bitcoin-ETF flow race, with about $2.1 billion and $1.8 billion of inflows, respectively, according to the latest Bloomberg data. On the other hand, Grayscale Bitcoin Trust (GBTC) — the world’s largest cryptocurrency fund with $20.2 billion in assets — saw around $4.8 billion of outflows since it converted into an ETF.
“GBTC is selling bitcoin — a lot of smart money bought ahead of this news. GBTC was trading at a big discount, so it was also an extra bonus to them. They’re taking profits. And that creates this move to the downside,” Soloway noted.
Another reason for the outflows is the GBTC’s fee of 1.5%, which is much higher than that of its competitors. In comparison, BlackRock and Fidelity’s fees are 0.25% after a waiver period. “So there’s going to be a certain amount of money that is going to sell the GBTC and then eventually rotate into these other ETFs that have much lower fees,” Soloway said.
This is the next risk for Bitcoin
Soloway pointed out that the selling in Bitcoin will likely balance out in the next couple of weeks but warned that another risk could hit the cryptocurrency.
“My bigger fear and this is the one bearish case that I have for Bitcoin, is what happens if we get a market top in the S&P? What happens if we get a de-risking event in the overall markets, in the equity markets?” Soloway asked.
A selloff in equities could spell more trouble for spot Bitcoin ETF inflows as people get fearful. “I do worry that Bitcoin could head back down. If we saw a 50% drop in the stock market, I do see Bitcoin retesting that $15,000 level,” Soloway said.
So far this year, the stock market has been performing well, with the S&P 500 and the Dow hitting new all-time highs and the Nasdaq trading close to record highs. However, Soloway said past Bitcoin trading patterns point to a potential top in the market.
“Right now, we see new all-time highs almost daily. But why is Bitcoin stalling out? One thing I’d like to point out is that if you look at the past cycles of Bitcoin, it topped out in December 2017, and the S&P topped out six weeks later in early 2018. If you go to 2021, the Bitcoin $69,000 high was put in November, and six weeks later, the S&P topped out. I’m a little bit on alert here. Let’s watch now what happens over the next three-plus weeks,” he stated.
Soloway also highlighted that the mainstream narrative about the market’s solid performance is false, noting that only the tech sector is performing well.
For Soloway’s technical analysis of the stock market and the specific levels he is watching on the Nasdaq, watch the video above.
If Bitcoin starts to sell off, the first level Soloway would be buying more is the $30,000-$32,000 level. But there is a chance it might drop even lower. For his call on the timing of the move down, the potential bottom in prices, and the long-term upside potential, watch the video above.
Soloway remains bullish on the gold market in 2024; for his price forecast, fundamental drivers, and technical analysis, watch the video above.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.