Bitcoin’s value experienced a significant dip, falling below $39,000 this week, effectively erasing most of the gains it had made in the past two months. These gains had been driven by high expectations of the approval of a spot Bitcoin ETF in the United States. However, when the much-anticipated ETFs were finally introduced, it resulted in a classic “sell-the-news” event.
The “sell-the-news” concept is well-established in capital markets and illustrates how asset prices, leverage, and market sentiment can work together to drive prices up in anticipation of a positive event, only to see a subsequent decline.
Bitcoin ETF Approval and Market Performance
Starting in mid-October, digital asset markets exhibited strong performance, fueled by speculation about ETFs and narratives related to capital rotation. Since BlackRock initially filed for its ETF, Bitcoin’s market capitalization increased by over 65%, and the overall altcoin market capitalization saw a similar rise of more than 69%.
However, Ethereum’s performance showed less bullish momentum during this period, with a decline of 17% compared to the broader altcoin space, according to data from the on-chain intelligence platform Glassnode.
Bitcoin Dominance vs. Ethereum Dominance
Examining the broader perspective, Bitcoin steadily increased its dominance over the past few years, growing from 38.9% to 49.8% since the FTX Collapse in November 2022.
In contrast, Ethereum’s market cap dominance remained within the range of 18.9% to 18.2%. Notably, the decline in market share was observed among altcoins, dropping from 28.3% to 24.2%, while stablecoins also saw a reduction from 13.9% to 7.8%.
Ethereum’s Surprising Rebound
Following the approval of Bitcoin ETFs, several entities have shown interest in introducing spot Ethereum ETFs, though securing approval might present more challenges, as the SEC could view Ethereum as more of an investment contract. Nonetheless, market sentiment remains positive.
Ethereum’s prices have surged by over 20% compared to BTC in recent weeks, marking its most significant performance on a quarterly, monthly, and weekly basis since late 2022. This coincided with a modest rebound in both Ethereum’s market cap dominance and the overall dominance of altcoins, with Ethereum gaining 2.9% in market cap dominance compared to Bitcoin.
Simultaneously, there has been a notable increase in the volume of net profits secured by Ethereum investors, reaching a new multi-year high. Profit-taking has been on the rise since mid-October, with the peak on January 13 surpassing $900 million per day, indicating investors capitalizing on the momentum created by the ‘sell-the-news’ scenario.
Glassnode observed a growing sense of optimism in the ETH market but also highlighted a potential point where markets typically pause to digest the distribution pressure from profit-taking. Historically, such shifts in sentiment among short-term holders have coincided with local peaks during a broader upward trend.
“ETH investors have recorded a multi-year high in net realized profits, suggesting there is some willingness to sell-the-speculation on a potential ETH ETF capital rotation.”