Interest in the latest Bitcoin financial products is waning as the pioneer cryptocurrency underwent its fourth “halving” event.
Upon their launch in January 2024, spot Bitcoin exchange-traded funds (ETFs) emerged as a standard for institutional investments in Bitcoin (BTC).
The eleven approved spot Bitcoin ETFs by regulators in the United States had collectively overseen inflows surpassing $13 billion within a few months of their debut, a feat that took Gold ETFs years to achieve.
During their peak, the spot BTC ETFs experienced daily net inflows reaching up to $1 billion, attributed to institutional investors shifting investments from the Grayscale Bitcoin Trust (GBTC) to these new ETFs.
The Bitcoin halving, a significant event in the cryptocurrency’s timeline occurring approximately every four years, involves halving the block reward for miners. As a result, the daily new BTC supply entering the market is halved, now reduced from 6.25 BTC to 3.125 BTC.
Anticipated reduced rewards coupled with high demand for BTC through ETFs prompted numerous experts to forecast a supply disruption post the April 20 halving.
Despite weeks of consistent positive net inflows to Bitcoin ETFs, interest in these products appears to be diminishing.
Could geopolitical factors be responsible for BTC ETF outflows?
While market analysts had foreseen a decline in GBTC outflows once institutions exhausted their shares to sell, ETF inflows have now turned negative.
Prior to the Bitcoin halving, spot BTC ETFs witnessed several consecutive days of net outflows in the hundreds of millions.
Nevertheless, Jag Kooner, Head of Derivatives at Bitfinex, remains optimistic, stating that ETF demand is likely to recover post-halving.
“The dwindling inflows and substantial outflows are not linked to the halving event, but rather to the ongoing decline in SPX and Nasdaq indices and geopolitical tensions. Bitcoin ETFs constitute an ‘alternative investment’ or a smaller segment of traditional finance investment portfolios. The current scenario may be a result of portfolio risk rebalancing and reducing exposure to high-risk assets,” he explained.
Read more: Bitcoin halving sparks focus on crypto education initiatives
Kooner added that BTC’s remarkable surge since January 2024 was fueled not only by ETF approvals but also by market players speculating on the impact of spot ETFs on Bitcoin’s price.
“As a result, we anticipate a stabilization in flows leading to renewed speculation favoring bullish flow trends as market conditions turn bullish,” he predicted.
Suppression of Bitcoin supply shock theory
In the initial three months of spot BTC ETF inflows, figures ranged from three to ten times the daily mining supply of 900 BTC. The heightened demand for ETFs and substantial purchases by institutional heavyweights like MicroStrategy led experts to predict an impending supply shock post-halving.
A report by Bybit forecasted that BTC reserves on exchanges might deplete within nine months of the halving, whereas other analysts projected a six-month timeline. According to data shared by CryptoQuant, BTC supply on centralized exchanges plummeted to a three-year low of 1.94 million BTC by April 16.
CEO of CryptoQuant, Ki Young Ju, echoed similar sentiments, warning of a potential severe supply shock for BTC “within six months” post-halving.
However, by the third week of April, daily net outflows had dampened ETF demand. Interest in ETFs had stalled towards the end of March when BTC experienced its initial week of net outflows.
Bitcoin ETF historical netflow. Source: CryptoQuant
Young proposed that ETF demand could rebound once the BTC price nears critical support levels, where new major investors, primarily ETF buyers, have a $56,000 on-chain cost basis. The cost basis denotes the total initial investment along with any applicable commissions or fees.
Kooner emphasized the presence of substantial long-term holders wielding considerable supply. He suggested a probable distribution by long-term holders during the later stages of the prevailing cycle, stating:
“The enthusiasm for spot Bitcoin ETFs is unprecedented by all measures, yet a sole metric cannot gauge the demand for BTC itself. Nonetheless, the downturn in the market is a clear indication that the present demand does not exceed the absolute BTC supply.”
Despite the dwindling ETF interest, open interest in BTC options has surged, indicating that long-term investors are biding their time while volatility-oriented investors are taking the stage.
Josef Tětek, Bitcoin advocate at hardware wallet producer Trezor, reminded that ETFs do not necessarily signal institutional appetite.
Read more: Memecoin sector’s continual development hinges on enduring utility
Under U.S. regulations, ETFs are accessible to both institutions and retail investors. Hence, it is impractical to gauge the repercussions and comparative influence of various…
..
