Published: December 26th, 2024
Cryptocurrency ETF inflows have fallen dramatically in recent days after crypto investment products suffered a record day of outflows off the back of a hawkish speech by US Federal Reserve chair Jerome Powell.
Data from CoinShares shows that investors moved USD 308 million into crypto funds last week, much of it into Bitcoin and Ethereum ETFs. But by Thursday, December 19th, investors had changed course and moved a record USD 575 million out of crypto instruments. On Friday, December 20th, that figure had risen to just over one billion USD.
In an accompanying analysis, CoinShares said the sudden backtrack was triggered by the Fed’s ‘hawkish dot plot’. Crypto funds had surged by more than USD 3.2 billion over the course of the previous week (wc December 9th), meaning inflows cratered by more than 90 per cent week-over-week.
Last week the Fed cut interest rates in line with market expectations, Fed chair Jerome Powell also gave a speech saying the US central bank would not cut so robustly next year. Investor sentiment turned sour, CoinShares says, as assets like Bitcoin typically perform better against a backdrop of low interest rates.
After Powell's speech, Bitcoin, Ethereum, and other major coins fell sharply. At time of writing Bitcoin was trading at USD 98,326 per coin, after dipping nearly 12 per cent over a seven-day period. Last week, BTC reached a new all-time high of little over USD 108,000, before taking a plunge.
In mid-August of this year, Bitcoin exchange-traded funds (ETFs) saw inflows of USD 1.35 billion as BTC-devoted funds chalked up their fifth-best week for the 2024 year to date.
Data from CoinShares showed that close to USD 1.44 billion in assets found their way into exchange traded crypto funds generally, bringing the year-to-date total to an all-time high of USD 17.8 billion, well in excess of 2021’s comparable YTD figure of USD 10.5 billion.
Bitcoin pulled in the lion’s share of crypto fund inflows, which is not surprising. Neither is the fact that USD 1.3 billion of the total inflows to crypto funds came from American investors. The rise had been steady, with mid-month inflows tripling the USD 441 million mark achieved just seven days prior, when crypto fund inflows turned positive again after three weeks of losses.
An analysis from Farside Investors echoes the CoinShares finding, showing that US spot Bitcoin ETFs saw a full week of daily inflows in late July, posting more than USD 310 million in net inflows on Friday, July 12th, 2024 alone. That was the highest level seen in over a month.
CoinShares' numbers also had Ethereum racking up positive inflows of around USD 72 million as crypto traders prepared for the expected approval of spot Ethereum ETFs. Altcoins like Solana, Avalanche benefitted from bullish sentiment, with Solana-based funds attracting close to USD 4.3 million in inflows.
In a commentary accompanying the data release, CoinShares said price weakness caused by the German government’s Bitcoin liquidation, along with "changing sentiment thanks to lower than anticipated inflation readings in the US had spurred investors to extend their crypto positions.”
In May of this year, following a period of sustained outflows, better days appeared to be back for Bitcoin ETFs. 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 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 was notable since the new investment vehicles had 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.
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. ‘Since Bitcoin ETFs were approved by the SEC in early January, there have been inflows of USD 5.93 billion,’ CoinShares said.
