Bitcoin Drops Below $40K Despite ETF Approval – What’s Driving the Decline?

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Two weeks after the U.S. Securities and Exchange Commission (SEC) approved the first spot Bitcoin exchange-traded funds (ETFs), Bitcoin has fallen below $40,000, sparking concerns among investors and reigniting debates about market sentiment, macroeconomic factors, and structural shifts in crypto investing.

The long-awaited approval of 11 spot Bitcoin ETFs on January 10, 2025, marked a historic milestone for the cryptocurrency industry—ending over a decade of regulatory resistance. Initially, the news sent BTC soaring to a two-year high near $49,000. But the rally was short-lived. Within days, prices began to slip, and as of this writing, Bitcoin trades at approximately **$39,890, representing a 21% decline** since its post-ETF peak.

This sharp reversal has raised an important question: Why is Bitcoin falling despite one of the most bullish regulatory developments in its history?

Market Reaction: From Euphoria to Sell-Off

According to data from Santiment, Bitcoin briefly dipped below $35,000 for the first time since April—marking its weakest performance in months. The broader crypto market followed suit, with most major altcoins posting steep losses.

“Monday was a bloodbath for most of the crypto industry,” Santiment noted. “Discussions around BTC are down 21% compared to the ETF approval week, while ETH-related chatter is down 35%.”

At the time of writing, the total cryptocurrency market cap stands at $1.59 trillion**, down **5.6%** over the past 24 hours. During that period, more than **125,000 traders were liquidated**, with total liquidations reaching **$330.16 million—$94 million of which were in Bitcoin positions and $71.54 million in Ethereum.

The largest single liquidation was a $5 million BTCUSD long position on Bybit, highlighting extreme leverage and fragile market confidence.

Bitcoin’s open interest (OI) also declined by 4.43%, now sitting at 436.51 million BTC ($17.06 billion). This is far below its all-time high of $24.3 billion in April 2021.

Exchange-specific OI data reveals significant shifts:

👉 Discover how institutional adoption is reshaping Bitcoin’s future.

Core Factors Behind the Downturn

1. Grayscale’s GBTC Outflows Crush Market Sentiment

While new ETFs like BlackRock’s IBIT and Fidelity’s FBTC have attracted fresh capital, Grayscale Bitcoin Trust (GBTC) has seen massive outflows—becoming the primary driver of downward pressure.

Before the ETF launch, GBTC held nearly 620,000 BTC. As of January 22, that number dropped to 552,681 BTC, with over 67,000 BTC sold off in just days.

Even more telling: GBTC continues to trade at a premium to net asset value (NAV)—though significantly reduced from its peak 48.89% discount in 2022. This structural inefficiency allows authorized participants to profit by redeeming shares and selling BTC directly, creating consistent sell-side pressure.

BitMEX Research notes that while improved market-making operations may explain part of the narrowing discount, the scale of outflows remains unsustainable.

In just seven days, GBTC recorded $3.44 billion in net outflows**, outweighing inflows into competing ETFs. Although total net flow across all new ETFs remains positive at **$1.089 billion, it's not enough to offset Grayscale’s massive sell-offs.

2. Fee Competition Is Accelerating Capital Rotation

Another major reason investors are abandoning GBTC: its 1.5% management fee, one of the highest in the industry.

Compare that to:

With lower-cost alternatives now available, rational investors are migrating—especially institutional holders.

3. FTX Estate Liquidation Adds Pressure

Recent reports confirm that the bankrupt FTX estate sold its entire 20,000-share GBTC position—worth around $1 billion—to cover liabilities. This fire sale further intensified selling pressure.

Alameda Research also dropped its lawsuit against Grayscale, which previously claimed over $900 million was trapped in GBTC due to its closed structure and excessive fees.

While this marks a potential end to one source of volatility, GBTC still holds over 550,000 BTC—meaning future outflows could continue if fee structures remain unchanged.

Macro Environment: Stocks Rise, Crypto Falls

Despite crypto’s slump, traditional markets are hitting record highs:

However, this rally is narrow—just seven mega-cap tech stocks are fueling most gains.

Meanwhile:

China’s potential $278 billion stock market bailout plan could stabilize local equities—but Beijing’s strict ban on crypto-related activities continues to limit BTC’s adoption in Asia.

What’s Next? Catalysts on the Horizon

✅ ETF Options Approval Expected by Q2

The SEC is reviewing proposals from Nasdaq and Cboe Global Markets to launch Bitcoin ETF options:

These derivatives could enhance hedging tools and attract more institutional capital.

✅ Ethereum Spot ETF Hype Builds

With Bitcoin ETFs live, eyes are turning to Ethereum. An approval could trigger renewed market momentum in mid-2025.

✅ Bitcoin Halving Looms in Early 2025

The next halving event—slated for April or May—will reduce block rewards from 6.25 BTC to 3.125 BTC, cutting new supply by 50%.

Historically, halvings precede major bull runs:

Miners are already preparing—accumulating BTC reserves increased by 6,562 BTC recently, reaching 1.834 million BTC total.

✅ Retail Accumulation Continues

Glassnode data shows small investors (“shrimp cohort” — holders with <1 BTC) are actively buying:

Stablecoin supply has also expanded significantly—growing by over $1 billion monthly** since late 2023, reaching **$128 billion in total.

👉 Learn how retail demand is quietly fueling Bitcoin’s long-term growth.

FAQ: Addressing Key Investor Questions

Q: Why is Bitcoin falling after ETF approval?
A: ETF approval triggered a classic “buy the rumor, sell the news” reaction. Meanwhile, massive outflows from Grayscale’s GBTC—driven by high fees and investor rotation—are creating sustained selling pressure.

Q: Are new Bitcoin ETFs attracting real money?
A: Yes. BlackRock’s IBIT and Fidelity’s FBTC have already amassed over $1 billion in assets each. However, inflows aren’t yet strong enough to offset GBTC’s outflows.

Q: Is this price drop a buying opportunity?
A: Many analysts believe so. With halving approaching and long-term adoption rising (global users now exceed 580 million), fundamentals remain strong despite short-term volatility.

Q: Could Bitcoin drop further?
A: Technically, the next support level is near $35,388 (200-day MA). A break below could trigger more liquidations, but sustained accumulation by miners and retail suggests a floor may form soon.

Q: What happens when GBTC lowers its fee?
A: If Grayscale cuts its 1.5% fee to compete, outflows may slow or reverse. Until then, capital will likely continue flowing into lower-cost ETFs.

Q: How does macroeconomic data affect Bitcoin?
A: Rising bond yields and a strong dollar tend to pressure BTC. However, expectations of future rate cuts—and increased institutional adoption via ETFs—could reverse this trend in 2025.

Final Outlook: Volatility Now, Growth Ahead

Yes, Bitcoin is down from its post-ETF highs—but this correction was expected. After a 70% surge since November, a pullback helps cleanse excess leverage and speculative positions.

More importantly:

While short-term pain is evident, the long-term trajectory remains bullish.

👉 See how Bitcoin’s halving cycle could unlock massive gains in 2025.

Keywords: Bitcoin price drop, spot Bitcoin ETF, GBTC outflows, Bitcoin halving 2025, crypto market crash, ETF approval impact, Bitcoin accumulation