Why It’s Important to Monitor the Flows of Bitcoin ETFs?

Those closely following the crypto industry have been eager to constantly update and analyze the pages displaying daily Bitcoin ETF flow data.

News headlines have been constantly updating segment observers regarding the influx and, more recently, the outflow of funds in these investment vehicles.

There has been much frustration regarding the U.S. Securities and Exchange Commission’s ongoing rejection of spot bitcoin ETFs. This has led to speculation about the amount of investor capital that these products could attract right from the start.

Discussions also included whether this request would generate sufficient enthusiasm to attract both individual and institutional investors, along with their funds, to the cryptocurrency realm.

We finally have the preliminary information to address some of these urgent inquiries.

On the first day, the funds recorded trading volumes of $4.5 billion, with net inflows amounting to $655 million. After just two months, following a remarkable influx of $1 billion in assets on March 12 alone, the funds’ total inflows reached an impressive $11.1 billion.

The current figure remains relatively stable as progress has decelerated in the past few weeks.

GBTC outflows have continued alongside a lack of interest in the two leading Bitcoin funds: BlackRock’s iShares Bitcoin Trust (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC).

Surprisingly, on Wednesday, ten funds, including those managed by BlackRock and Fidelity, experienced outflows, leading to a significant exodus of $564 million on that day.

Now that we have provided this context, we can expand our perspective to analyze the broader consequences of Bitcoin ETF movements.

The Influence of Bitcoin ETF Flow

According to Bryan Armour, the director of North America passive strategies research at Morningstar, bitcoin’s price movements are usually influenced by inflows and outflows, making it a speculative investment.

Indeed, bitcoin ETFs do purchase and retain bitcoins. The total supply of bitcoins will eventually reach a maximum limit of 21 million, and the amount of new bitcoins added to the market decreased by 50% on April 19.

Therefore, the acquisition of bitcoin ETFs in response to the increasing demand for these funds played a significant role in driving bitcoin’s price surge to an unprecedented peak of approximately $73,000 in mid-March. The situation can be reversed when individuals decide to offload their Bitcoin ETF holdings.

Putting the Shorter-Term Noise Aside

According to Lawant, the influence of bitcoin ETF flows on BTC price fluctuations will occur gradually in the upcoming quarters and years.

“Although it is important to monitor these flows and short-term fluctuations may attract attention, it is crucial to ignore the temporary distractions and concentrate on the factors that hold greater significance in the long term,” he emphasized.

The continuous week-long outflows of Bitcoin ETF funds may be a cause for concern among those involved in the cryptocurrency industry. However, according to Armour, this outcome was not surprising.

The price of Bitcoin was approximately 61,700 at noon ET, showing a 4.5% increase for the day and a 4% decrease compared to the previous week.

Some other observers in the segment expressed their views on the platform previously known as Twitter, informing new investors in ETFs that outflows are a common occurrence, regardless of the underlying asset.

Nate Geraci highlighted the cumulative outflows for State Street Global Advisors’ SPDR Gold Shares (GLD) so far this year, which amount to approximately $2.9 billion, as reported by ETF.com. Despite the fact that the price of gold has increased by approximately 11% since the beginning of 2024, this remains unchanged.

“This is the function of ETFs,” Geraci stated on X. “Increases in inflows do not follow a linear trajectory.”

A minor disagreement arose when macro strategist Jim Bianco pointed out the recent outflows from a bitcoin ETF in a post on Thursday. The president of Bianco Research previously expressed that individuals outside of the cryptocurrency community faced challenges after a correction known as “sell-the-news” occurred in the weeks following the fund’s launch.

According to Bloomberg analyst Eric Balchunas, the outflows on that particular day (a significant $564 million) accounted for only 1% of the total assets under management in the category.

Over the past few weeks, the outflows have only accounted for less than 5% of the segment’s total assets. Balchunas mentioned that this level of outflows is entirely average for a risk asset ETF during a sell-off.

Was yesterday not the start but rather the conclusion? Bianco responded.

Balchunas predicts that the ETFs may lose 10% of their assets under management if the bitcoin correction worsens.

“However, it’s an interesting inquiry in the sense that this is just the start when we take a broader perspective,” the analyst from Bloomberg Intelligence remarked. These ETFs are expected to have a long-lasting presence, spanning years and even decades. They tend to acquire assets and increase volume compared to other vehicles over time, although this may only sometimes be in a completely linear fashion.

According to Armour, the information collected from bitcoin ETF inflows and outflows can only provide limited insights and does not offer any clues about future price movements.

Could investors abandon ship in the face of a downturn, leading to a profound existential dilemma? Armour presented itself. Can the widespread adoption of cryptocurrency sustain its current value? There is currently no framework available that can accurately forecast cryptocurrency’s future trajectory.

Spot bitcoin ETFs are just a tiny part of the bitcoin ecosystem, according to Armour’s perspective. They make up approximately 4% of the total market value of Bitcoin.

“The swift rise of their influence had a significant effect on the value of bitcoin, but as the flow of US ETFs stabilizes, the overall bitcoin ecosystem will once again reclaim its prominence,” Armour stated.