Bitcoin ETFs: The Unlikely Villains of the Crypto Crash?

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In the last 48 hours, Bitcoin has taken a nosedive of over 10%. It’s as if the crypto market, which had been enjoying a peaceful slumber, suddenly woke up to find itself in a horror movie. Investors are now scratching their heads, wondering if US spot-based Bitcoin ETFs are the culprits behind this chaos. Spoiler alert: they might just be the scapegoats we never asked for.

Vetle Lunde, the Head of Research at K33 Research, took to X (formerly known as Twitter, because who doesn’t love a good rebranding?) to share some alarming news: “Yesterday’s net outflow of 14,579 BTC in BTC ETPs globally is the largest recorded net outflow since the launch of US spot ETFs. Outflows have dominated throughout February. 69% of all trading days have concluded with net outflows.” That’s right, folks. It’s like a bad breakup where everyone is just running for the hills.

Are Bitcoin ETFs To Blame?

These numbers are like a steady drumbeat of doom in the ETF market. According to Lunde, it’s not just a one-day freakout; it’s a full-blown trend. Who knew that February could be so dramatic?

But hold your horses! Not everyone is convinced that these massive outflows are a sign of impending doom. Adam (@abetrade) from Trading Riot argues that dramatic ETF flows have historically been the prelude to market corrections that eventually revert to their mean behavior. He pointed out that, aside from that one time after Trump’s win on November 7th, these “big red numbers” usually trigger panic selling, which is basically the market’s way of saying, “Surprise! We’re going up!”

Adam believes we might be overreacting: once the initial wave of selling calms down, the market could stabilize or even enjoy a little relief rally. It’s like waiting for the storm to pass, only to find out it was just a passing shower. “Except for November 7th, when large inflows followed Trump’s win, every other occurrence of outsized inflows or outflows has been a mean-reverting signal,” Adam stated, probably while sipping a latte and contemplating life’s mysteries.

Adding to the confusion is the ever-evolving dynamics in the futures markets. Zaheer Ebtikar, Chief Investment Officer and founder of Split Capital, connects the dots between ETF outflows and futures pricing. Until recently, CME Futures were trading at nearly double the premium of conventional cryptocurrency exchanges. But then, like a bad haircut, the futures premium corrected itself and dipped below 5%—a level that’s practically begging for a risk-free rate.

Ebtikar noted that this correction has been pivotal. As the futures premium normalized, market participants seemed to “throw in the towel” on Bitcoin ETFs, with CME Futures open interest falling to its lowest since the last election cycle. This decline in open interest, paired with near-record trading volumes on the CME, suggests that investors are becoming increasingly cautious about holding ETFs while still engaging in futures speculation. It’s like trying to juggle while riding a unicycle—good luck with that!

The interplay between a shrinking futures premium and rising futures volume creates a paradox. “In a paradoxical way, futures premium down = futures start getting bid and ETFs start dumping. The final tell here was CME Futures volume in the past couple of days reaching near record highs since the election,” Ebtikar concluded, probably while shaking his head at the absurdity of it all.

Macro Headwinds

Meanwhile, macroeconomic unease is dragging down both crypto and traditional markets. Singapore-based QCP Capital describes the situation as a “global risk-off move” affecting equities, gold, and BTC, amid whispers of stagflation. Consumer sentiment has taken a hit, as evidenced by a weaker-than-expected Consumer Confidence Index of 98 (versus the expected 103). And let’s not forget the US administration’s newly confirmed 25% tariffs on Canadian and Mexican imports—effective March 3—because who doesn’t love a good trade war?

As QCP Capital sees it, investors are growing wary of potential trade escalations and elevated inflation, creating an atmosphere of uncertainty. The once-crowded “Magnificent 7” equity trade is unraveling, and “long crypto” has also been identified as one of the most overextended positions. In choppy markets, crypto is often the first to be liquidated, reinforcing the negative price action. It’s like watching a game of musical chairs, but everyone is too busy panicking to find a seat.

Looking ahead,

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2025-02-27 02:43