As a crypto investor with experience in the market, I’m excited about the recent approval and success of Bitcoin ETFs in the U.S., particularly BlackRock’s iShares Bitcoin Trust which has amassed over $17 billion in assets under management. The introduction of these ETFs has created significant new demand for Bitcoin, driving its price to record highs. However, I’m also aware that there have been recent signs of a shift in investor sentiment and substantial outflows from some Bitcoin ETFs.
As a financial analyst, I’m excited to share that in the opening month of this year, the United States Securities and Exchange Commission gave its approval for the first-ever Bitcoin spot Exchange Traded Funds (ETFs) in the country. This groundbreaking development has led to significant growth for investment products like BlackRock’s iShares Bitcoin Trust. According to recent reports from Bloomberg, assets under management for this particular trust have surpassed an impressive $17 billion. The surge in assets can be attributed to both substantial net inflows and remarkable gains in the value of digital assets throughout 2021.
Over the past few years, the eleven Bitcoin ETFs based in the United States have amassed approximately $12 billion in combined investments since their debut. This surge in investment has significantly contributed to the cryptocurrency’s price reaching an all-time high of over $73,000 in March.
Since January, Bitcoin Exchange-Traded Funds (ETFs) have seen unprecedented inflows. However, there has been a noticeable decrease in new investments since late March, hinting at a possible change in investor attitudes. After the Bitcoin price underwent considerable corrections following the halving event, substantial outflows have persisted.
Major success in beginning
As an analyst, I’ve observed that Bitcoin ETFs saw significant investments each week, totaling between $1.2 and $2.5 billion during the first quarter. This influx of funds into crypto markets has closely mirrored price trends in Bitcoin.
Over the past two and a half months, the introduction of Spot Bitcoin Exchange-Traded Funds (ETFs) has led to a surge in demand for Bitcoin. However, the supply of new Bitcoins is restricted solely to rewards given to miners. Notably, the appetite from ETFs for Bitcoin has exceeded the rate at which new coins are being issued.
Among the monetary inputs, the financial market has undergone some modifications as well. A case in point is the noticeable shifts in trading behavior. For instance, when it comes to examining trading volumes, exchange-traded funds (ETFs) backed by Bitcoin have become a significant player in the total spot trading volume on conventional exchanges.
As of March 31, 2024, spot Bitcoin ETFs have accumulated nearly $60 billion in assets.
Demand decreasing
The inflow of funds into Bitcoin ETFs has decreased unexpectedly due to two successive months of higher-than-anticipated U.S. inflation and the Federal Reserve’s persistent monetary policy, which keeps interest rates at their highest level in 23 years despite disappointing inflation reports.
Trouble signs first appeared on April 25 as BlackRock’s Bitcoin ETF ended its impressive 71-day run of daily inflows. Concurrently, IBIT witnessed no new investments and recorded a total of $120 million in outflows. Similarly, Grayscale’s GBTC experienced substantial outflows, surpassing $130 million. Meanwhile, Fidelity’s FBTC attracted modest inflows worth $5.6 million, while Ark’s ARKB saw a comparatively smaller $4.2 million in new investments.
Starting from May 2, every ETF reported net redemptions amounting to $563.7 million – marking the most significant loss since the market’s inception in January. This trend has continued for approximately two months, resulting in a staggering $6 billion decrease in assets under management over the past four weeks, translating to a 20% reduction.
As a researcher studying the investment trends in U.S. Bitcoin exchange-traded funds (ETFs), I’ve noticed that investors withdrew approximately $218 million from these funds in a single day. This represents one of the largest daily outflows we’ve seen, as the demand for risky investments wanes amidst diminishing expectations for Federal Reserve interest rate cuts.
The substantial decrease in Bitcoin prices, which saw a 65% increase from the start of the year to its peak at $73,000 in March, has led to these outflows. Currently, Bitcoin is hovering around $59,000. This price drop corresponds with the emergence of sizable withdrawals from Bitcoin ETFs.
On May 3rd, Bitcoin ETFs recorded their strongest gains in recent weeks. As reported by Farside, the Bitcoin spot ETF attracted a substantial net investment of $378 million on this day, marking the first influx of funds following seven consecutive days of outflows.
For the initial time since its launch in January, investors poured fresh funds into the Grayscale Bitcoin Trust (GBTC), resulting in a total inflow of $63 million. (GBTC is currently the largest Bitcoin exchange-traded fund in terms of assets.)
Hong Kong did not live up
Hong Kong’s Bitcoin and Ether-backed ETFs were launched on April 30th. The total trading volume for these six ETFs amounted to $12.7 million on their inaugural day. In comparison, US funds saw a staggering $4 billion in trading volume during their first day of operation.
As an analyst examining the data from Arkham Intelligence, I can report that Bosera HashKey’s Bitcoin and Ethereum Exchange-Traded Funds (ETFs) hold approximately 964 Bitcoins and Ethereums, equivalent to around $71.94 million in assets under management. Likewise, according to Eric Balchunas, a senior ETF analyst at Bloomberg, ChinaAMC’s Bitcoin and Ethereum ETFs have accumulated combined assets totaling roughly $123.61 million.
In my earlier tweets about Hong Kong, I mentioned that its ETF market is a tiny fraction of the size of the US market, equating it to ants. Indeed, this is accurate. However, despite its small stature, the opportune timing of Hong Kong’s ETF launches coincided with a deceleration in the US market. As a result, the impressive inflows of over $141 million into Hong Kong ETFs will more than compensate for any minimal outflows from the US market.
— Eric Balchunas (@EricBalchunas) April 30, 2024
In spite of their relatively smaller asset sizes, Hong Kong’s ETFs have attracted significant attention. A recent survey conducted by OSL, a licensed crypto exchange based in Hong Kong, revealed that 76.9% of informed investors in the city intend to invest in the newly launched Bitcoin and Ether ETFs.
Future of Bitcoin ETFs
According to JP Morgan’s leading analyst, Nikolaos Panigirtzoglou, there has been notable selling or profit-taking in both the equity and cryptocurrency markets over the past few weeks. It is believed that retail investors may have played a more substantial role than institutional investors in these transactions.
It seems that individual investors in the retail sector have offloaded their holdings in both cryptocurrency and stock funds. Regarding institutional investors such as Commodity Trading Advisors (CTAs) and quantitative investment firms, they have reportedly cashed out on their excessively long positions in equities, Bitcoin, and gold.
The main question is whether the demand for Bitcoin ETFs from retail investors will rebound.
Major firms like Morgan Stanley, JPMorgan, and Wells Fado have reportedly considered allowing their brokers to propose Bitcoin spot ETFs to customers, but no definitive policy has been implemented as of now. At present, issuers of Bitcoin spot ETFs do not have direct access to the clientele of these large registered investment advisors and broker-dealer platforms.
In periods of instability in the Bitcoin market, substantial withdrawals from Bitcoin ETFs frequently coincide with significant price decreases. This implies that investors typically respond to existing declines instead of triggering them, shedding light on their reactive investment behavior during market turbulence. Understanding this dynamic is essential for interpreting price fluctuations.
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2024-05-04 15:31