The approval of a Bitcoin (BTC -6.24%) ETF was supposed to bring billions of dollars into the crypto industry, but in typical fashion, investors bought the rumor and sold the news. As of 2:30 p.m. ET, Bitcoin is down 6.3% in the last 24 hours, and the selling accelerated early this morning.
Ethereum (ETH -3.31%) has rallied the last few days but dropped 3.7% between 10 a.m. ET and 2:30 p.m. ET. Dogecoin (DOGE -4.54%) plunged 3.9% in just the last few hours as well.
Buy the rumor, sell the news
The Bitcoin ETF approval was months in the making, and when these ETFs were announced on Wednesday, Jan. 10, the market started to sell off. A lot of traders had bought in anticipation of the ETFs (buying the rumor) and then began selling when there was no longer a catalyst to count on in the future (sell the news).
To be fair, Bitcoin has been flat in the past week, Ethereum is up 10%, and Dogecoin is down just 0.4%. So there hasn’t been a big move if you pull back a bit.
I do think it’s notable that Ethereum has gained as much as it has. The speculation trade has likely moved to the second-largest cryptocurrency, which could eventually be a popular ETF asset as well.
Technology takes it on the chin
Cryptocurrency doesn’t trade in a vacuum, either. Over the last three years, cryptocurrency has traded with high-growth tech stocks, and they’re having a terrible day.
Layoffs at Cloudflare, Alphabet, Discord, and dozens of other companies are calling into question the growth we should expect for 2024. There’s still a delayed realization in parts of the tech industry that growth is slowing and costs need to come under control if companies are going to be profitable.
This doesn’t necessarily impact cryptocurrencies directly, but if cryptocurrencies trade with growth tech stocks, it’s not surprising to see a sell-off.
What we don’t know matters most
The theory of the last few months in cryptocurrencies was that an ETF approval would bring new buyers into the crypto market, bringing billions of dollars with them. But will that be the case?
It seems to me that buying cryptocurrencies is easy enough for anyone who wanted to buy some over the last few years. An ETF may make it easier in some ways, but it also comes with fees that are unnecessary for cryptocurrencies you can hold in self-custody.
I wouldn’t be surprised if cryptocurrencies continue to fall as the market realizes that new money isn’t coming in as expected following ETF approvals. And there’s no increased utilization of the blockchain for innovative purposes if assets are held in an ETF.
This week has been more volatile than even a normal week in crypto. Don’t be surprised if that’s the theme for the next few weeks as the market figures out who is buying crypto to hold and who was just speculating on ETF approvals. There may be more speculation going on than investors would like to think.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Travis Hoium has positions in Alphabet, Cloudflare, and Ethereum. The Motley Fool has positions in and recommends Alphabet, Bitcoin, Cloudflare, and Ethereum. The Motley Fool has a disclosure policy.
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