Published: September 25th, 2024
Investment funds pegged to cryptocurrencies saw inflows totaling hundreds of millions of USD last week (wc 16th September 2024) as investors reacted to moves by the US Federal Reserve to finally cut interest rates.
Data from CoinShares showed that crypto traders and institutional investors poured some USD 320 million into funds that provide exposure to Bitcoin and other major coins. The data analytics firm said the inflows 'almost certainly triggered’ by comments from the US central bank’s Federal Open Market Committee last week.
On Wednesday, 18th September, Fed Chair Jerome Powell said the bank would slash interest rates by 50 basis points, sending traders galloping back to more risk-on assets. Cryptocurrencies and US stock prices both tend to exhibit greater volatility than other assets and typically perform better in low interest-rate environments.
CoinShares said that most of the fund inflows were drawn to Bitcoin, with investors putting USD 285 million into Bitcoin exchange-traded funds (ETFs). Since their long-awaited approved in January 2024, ETFs have proven to be a hit with traditional and individual investors, providing a risk-mitigated way to gain exposure to the world's number one cryptocurrency.
Bitcoin’s price was USD 64,270 at time of writing, having risen more than nine per cent in the last seven days, CoinGecko said.
In the same period, investors appeared to have cooled on Ethereum, pulling money out of funds providing exposure to ETH. ‘Ethereum is still an outlier’, CoinShares wrote, ‘experiencing outflows for the fifth consecutive week, totaling USD 30 million.’
Following a downcast Q1 marked by net outflows, investors began wading back into Bitcoin exchange-traded funds in May 2024. Across the board, every one of the new-ish class of US investment products saw cash flow turn positive.
Figures published by Farside Investors showed that for the first time since receiving SEC approval, Bitcoin ETFs had achieved a unanimous turnaround. Investors flowing more cash into Grayscale’s Bitcoin Trust (GBTC) was the definitive move, marking the first-time that net inflows went positive since converting to an ETF in January.
From that point the fund experienced daily outflows as investors who had been unable to redeem shares previously exercised the option, apparently in a bid to locate competing funds with lower fees.
That all changed last Friday when GBTC ballooned by USD 62 million. That, and parallel moves by investors sending cash to all the other crypto funds, added up to USD 378 million flowing into the Bitcoin ETF market in a single day.
The turnaround is notable since the investment vehicles also posted their worst day ever the same week, losing more than half a billion dollars. The sudden departure came after weeks of cooling investor interest.
In January, the US Securities and Exchange Commission (SEC) finally gave assent to 11 spot Bitcoin ETF applications after a decade of regulatory heel-dragging. The funds allow everyday investors to gain exposure to crypto markets through a brokerage account. The instruments track the price of the cryptocurrency, so investors don't have to hold the crypto and face direct exposure to its ups and downs.
Earlier this year, January figures from CoinShares suggested a lot of money was exiting big Bitcoin funds, possibly explaining the price drop BTC and other cryptocurrencies experienced in the same time frame.
On the upside it appeared that outflows from the biggest fund, Grayscale, were starting to subside.
Investors had been in a hurry to cash out their Grayscale holdings since the fund changed over to an exchange-traded fund (ETF) in early January. This sent Bitcoin’s price plummeting when the fund moved its cryptocurrency holdings to Coinbase for custody.
The outflows from Grayscale alone came to USD 2.2 billion by mid-January, though CoinShares says outflows were starting to level off by end of January.
CoinShares added that investors also took over USD 500 million out of the hands of big crypto fund managers like Fidelity, ProShares, Bitwise, and 21Shares. Most of the outflows were in BTC.
Yet even with all the cash flowing out of these big funds, the newly minted Bitcoin ETFs did see significant inflows. ‘Newly approved BTC ETFs saw inflows in the region of USD 1.8 billion, a reverse image of the impact in BTC investment funds. Since Bitcoin ETFs were approved by the SEC in early January, there have been inflows of USD 5.93 billion,’ CoinShares said.
The long-awaited regulatory approval of 10 BTC ETFs and the start of trading on Wall Street had sent investors racing to get an early piece of the action. Pent-up demand intensified ahead of the SEC’s begrudging approval; and regulators had been dragging their heels on processing spot Bitcoin ETFs as late as November 2023.
In an odd twist of the market, surging interest in the new investment vehicles didn’t really have an impact on BTC’s price. Spot Bitcoin ETFs are designed to give investors exposure to cryptocurrency price moves in a safe and regulated manner.
In July 2023, big investors also started pulling their money out of crypto funds after a period of robust inflows.
At the time, a report form CoinShares said that a total of USD 6.5 million had left crypto investment products in the 2nd week of July 2023, a sharp reversal after four consecutive weeks of inflows totaling USD 741 million.
Most of the money was focused on Bitcoin and flowed out of large funds for accredited investors and run by the likes of big firms like Grayscale and 21 Shares.
By early August, Bitcoin had fallen back to USD 29,200 after reaching a five-day high of USD 30,240, a drop of nearly three per cent in 48 hours.
For crypto investment products, there were signs that some portfolio rebalancing was in the works. CoinShares noted that investors also placed USD 6.5 million into Ethereum funds during the same period.
‘While overall crypto sentiment from large investors has been negative this year, there are signs it may be starting to turn around,’ CoinShares said in a statement.
