The United States Securities and Exchange Commission authorised the nation’s first spot Bitcoin ETFs in January. According to Bloomberg, BlackRock’s iShares Bitcoin Trust has amassed over $17 billion in assets under management, mostly due to large net inflows and notable price increases in digital assets this year.
The price of Bitcoin reached a new high of nearly $73,000 in March thanks to the $12 billion in net inflows that the 11 U.S.-based spot Bitcoin ETFs have received since their introduction.
Although inflows into Bitcoin ETFs have been smashing records since January, there has been a slowdown since late March, suggesting that investor mood may be changing. big outflows have continued to happen after big market declines in the aftermath of the Bitcoin halving.
Major success in beginning
In the first quarter, Bitcoin ETFs had strong weekly inflows ranging from $1.2 billion to $2.5 billion after their launch. Significant money flows have been seen in the cryptocurrency market, and they have been closely linked to changes in the price of Bitcoin.
Spot ETFs have significantly increased demand for Bitcoin, but the amount of fresh currency available is only as much as the incentives that miners receive. Demand for ETFs has greatly exceeded supply in the 2.5 months since spot ETFs started trading.
Along with these monetary inflows, the market has also witnessed modifications to its trading patterns. In terms of trading volumes, for instance, spot Bitcoin ETFs now make up a sizable share of all spot trading traffic on centralised exchanges.
Spot Bitcoin ETFs have amassed holdings close to $60 billion as of March 31, 2024.
Demand decreasing
Due to the unexpectedly high U.S. inflation for the second consecutive month, along with the Federal Reserve’s supportive monetary policy that kept interest rates at a 23-year high in the wake of disappointing inflation statistics, BTC ETF flows began to decelerate.
The first sign of problems appeared on April 25, when inflows into BlackRock’s Bitcoin ETF came to an end after 71 days. IBIT saw $120 million in total withdrawals during this time, with no new inflows. Grayscale’s GBTC saw substantial withdrawals as well—more than $130 million. On the other hand, $5.6 million was drawn to Fidelity’s FBTC and $4.2 million to Ark’s ARKB.
As of May 2, outflows from all ETFs had reached a total of $563.7 million, the most since trading started in January. The slide has continued for over two months; during the last four weeks, funds have lost around $6 billion, or 20% of their assets under administration.
One of the largest daily withdrawals from US Bitcoin exchange-traded funds occurred when investors withdrew a net $218 million, as demand for high-risk assets declined due to diminishing expectations of Federal Reserve interest rate decreases.
The continuous drop in Bitcoin is the reason for the substantial outflows. After rising by 65% at the start of the year to an all-time high of $73,000 in March, the price of bitcoin has since dropped by about 20%, and it is presently trading at $59,000. The start of ETF withdrawals corresponds with this drop in the price of Bitcoin.
On May 3, however, Bitcoin ETFs saw their best week-over-week return. Farside reports that on May 3, the Bitcoin spot ETF had a $378 million net inflow, which was the first net inflow following seven days of net outflows.
For the first time since its launch in January, investors contributed a net amount of additional money to the Grayscale Bitcoin Trust (GBTC), the largest Bitcoin ETF by assets. A net $63 million was added to the trust.
Hong Kong did not live up
On April 30, spot Bitcoin and Ether ETFs were introduced in Hong Kong. All six ETFs had a total trading volume of $12.7 million. On the first day of operation, however, the U.S. funds had a turnover exceeding $4 billion.
Bosera HashKey spot Bitcoin and Ether ETFs have amassed 964 BTC and ETH, totaling $71.94 million in assets under management, according to Arkham Intelligence data. Similarly, according to Eric Balchunas, a senior ETF analyst at Bloomberg, the aggregate assets of ChinaAMC’s spot Bitcoin and Ether ETFs are $123.61 million.
Even with the relatively lower asset prices, Hong Kong ETFs have attracted a lot of attention. As to a study conducted on April 28 by OSL, a cryptocurrency exchange authorised in Hong Kong, 76.9% of informed participants in the city intend to invest in the recently launched spot Bitcoin and Ether ETFs.
https://x.com/EricBalchunas/status/1785285419174592963
Future of Bitcoin ETFs
Top JP Morgan analyst Nikolaos Panigirtzoglou believes that both the equities and cryptocurrency markets experienced strong selling and profit-taking in recent weeks, with ordinary investors perhaps having a larger impact than institutional investors.
It looks like retail investors dumped both equities and cryptocurrency ETFs. Institutional investors, including CTAs and other quantitative funds, seem to have profited from prior excessive long positions in gold, Bitcoin, and stocks.
Whether retail investors’ appetite for Bitcoin ETFs will increase again is the key question.
Although no policy has yet been implemented, Morgan Stanley has indicated interest in enabling its brokers to offer the product to their clients. Issuers of Bitcoin spot ETFs are now unable to reach the clientele of significant broker-dealer platforms and registered investment advisors, such as Wells Fargo, JPMorgan, and Morgan Stanley.
Prominent ETF withdrawals are frequently correlated with significant declines in the price of Bitcoin, suggesting that investors typically respond to already-occurring downturns rather than initiating them. This implies that during periods of market turbulence, investor behaviour is mostly reactionary, which is important for comprehending the causal relationship between price fluctuations.
