Published: May 8th, 2024
After a downcast period of sustained outflows, better days appear to be back for Bitcoin exchange-traded funds (ETFs). Across the board, every one of the new-ish class of US investment products saw cash flow turn positive on Friday May 3rd.
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.
'The inflows and outflows are notable, but it is likely too soon to draw major conclusions about the direction of the market. Most of the outflow happened in short Bitcoin instruments, which could mean investors remain bullish about BTC’s long-term prospects.’
Institutional investors spent much of 2023 moving money back into crypto. Crypto investment funds also saw a brief period in July 2023 where inflows actually surged.
Several high-profile asset managers are working to convince America’s chief financial regulator, the Securities and Exchange Commission, to green light their applications for a spot Bitcoin exchange-traded fund (ETF).
Traditional finance has sustained its engagement with the crypto marketplace, even if sentiment occasionally seems unsettled.
A June 2023 report from crypto analytics firm Kaiko showed that Bitcoin’s correlation to the tech-centric Nasdaq 100 index had dropped to its lowest point in three years. That suggested a long-term de-coupling was underway, happening even as the number one cryptocurrency reached its highest correlation with gold in several years.
Kaiko said that the Nasdaq 100 / BTC correlation had dropped to just three per cent. The index tracks the performance of the most actively traded (and largest) non-financial-services firms listed on the Nasdaq exchange.
Kaiko analysts noted that the index's correlation with traditional risk assets has also softened steadily in 2023, dropping from an average of 60 per cent last year (2022). At the same time, Kaiko said that the Nasdaq 100 is now in bull market territory, up more than 20 per cent over lows hit in December 2022.