Spot Bitcoin ETFs have crashed into a bear market this year, declining by over 20% from their all-time highs. BlackRock’s IBIT has tumbled to $45, while Fidelity’s FBTC and Ark Invest’s ARKB have fallen to $70 and $80, respectively.
These ETFs have fallen and suffered significant outflows in the past few months. IBIT now has about $47 billion in net assets, while FBTC and ARKB have $15 billion and $3.7 billion, respectively. Grayscale’s GBTC has $15.5 billion. Here are the four main reasons to buy or dollar-cost average (DCA) spot Bitcoin ETFs.
Bitcoin ETF Volatility
The first main reason why one should consider buying spot Bitcoin ETFs is that this is not the first time that Bitcoin has plunged into a bear market before. For example, it dropped by 32% from its highest point in March to its lowest point in August last year. Bitcoin also crashed by over 77% from its highest level in 2021 to its lowest point in 2022. There have been many similar crashes in the past.
This means that Bitcoin’s surge to a record high of over $109,300 this year has not been linear. The coin has had several highs and lows, meaning this one will also be temporary.
Bitcoin’s Strong Fundamentals
Second, Bitcoin has strong fundamentals, which may increase its price in the long term. The most important fundamentals are its demand and supply. Unlike other assets, Bitcoin has a fixed supply of 21 million tokens. Millions of these coins have been stolen, while the current circulating supply is over 19.83. This means that Bitcoin miners are now fighting for just 1.17 million coins. Not all these 1.17 million coins will be mined as the cost will be very high.
At the same time, Bitcoin executes halving every four years, which increases the mining difficulty. All this will happen at a time when investors are buying these assets, with all spot Bitcoin ETFs bringing in over $35 billion in inflows. Therefore, these fundamentals will support Bitcoin ETFs like IBIT, GBTC, FBTC, and ARKB.
Bitcoin’s Breakout Potential
The other reason the IBIT, FBTC, and ARKB ETFs will do well is that Bitcoin is simply following a break-and-retest pattern, a popular continuation sign. This is a situation where an asset crosses a key resistance and then retests it.
In this case, it crossed the resistance at $73,600 a few months ago, and is now dropping to retest it. This resistance is notable since it was the highest level in March last year.
Bitcoin ETFs
The other potential catalyst for spot Bitcoin ETFs is that the US may go through a recession this year because of Trump tariffs and the upcoming government shutdown. A recession is a suitable catalyst for cryptocurrencies because it leads to lower interest rate cuts by the Federal Reserve.
Bitcoin and all altcoins surged during the pandemic as the Federal Reserve slashed interest rates to zero. Similarly, the stock market surged after the Global Financial Crisis (GFC) after the Fed cut rates and implemented quantitative easing (QE).
QE is a situation in which the Federal Reserve prints cash and invests in government bonds and mortgage-backed securities. Crypto and other risky assets do well when the Fed cuts rates and implements QE.
Final thoughts
Given their recent fall, the paper presents a complex view of spot Bitcoin ETFs’ present situation. Although the recent 20% decline in spot Bitcoin ETFs may seem concerning, it is not unusual, given past repeated declines in Bitcoin. Bitcoin’s volatility has always been constant; hence, the brief declines can offer opportunities for long-term investors.
One very important element is the focus on Bitcoin’s scarcity. Given a maximum supply of 21 million tokens and growing mining difficulty, Bitcoin’s scarcity is a main determinant of its value over time. The loss of a sizable amount of the supply reinforces this story even more, so Bitcoin becomes a more appealing store of value, particularly compared to fiat.
