Bitcoin ETF Demand Slows Ahead of Halving, But Optimism for Resurgence Persists
Summary:
Despite Bitcoin's recent 'halving', demand for its spot exchange-traded funds (ETFs) has slowed. Introduced in 2024, these ETFs experienced a net inflow of up to $1bn a day at their peak, but recent figures show these inflows have become negative. This slowdown in demand comes amidst a significant reduction in Bitcoin production, with predictions of a supply shock post the April 20 'halving' seemingly unfulfilled. However, industry insiders are optimistic about a resurgence in demand post 'halving', highlighting the overall growing demand for Bitcoin internationally.
As Bitcoin undergoes its fourth 'halving', there's a noticeable slowdown in the demand for its newest investment products. Launched in January 2024, Bitcoin's spot exchange-traded funds (ETFs) became a staple for institutional investments. These ETFs, endorsed by US regulators, handled over $13 billion in investments just a few months after their introduction - an achievement that took gold ETFs several years to reach. At their zenith, the Bitcoin ETFs were seeing daily net inflows of up to $1 billion, mainly due to institutional investors shifting investments from the Grayscale Bitcoin Trust (GBTC) into these funds.
The Bitcoin 'halving' event, happening approximately every four years, involves the miner's block reward being halved, drastically decreasing the number of new Bitcoins entering the market. This time around, the block reward went from 6.25 BTC to 3.125 BTC. With reduced rewards and high demand for Bitcoin via ETFs, some predicted a supply shock post the April 20 halving.
But recently, the consistent positive inflows into Bitcoin ETFs seem to be diminishing. Are geopolitical influences causing the outflow from Bitcoin ETFs? While expectations were that GBTC outflows would shrink as institutions exhausted their GBTC shares to sell, ETF inflows have now become negative, with several days of net outflows amounting to hundreds of millions of dollars taking place ahead of the Bitcoin halving.
Jag Kooner, Head of Derivatives at Bitfinex, however, has faith in a resurgence in demand for ETFs post-halving. He attributes the drop in inflows and significant outflows not to the halving event, but the current decline of the S&P and Nasdaq, plus geopolitical tensions. He believes that the Bitcoin ETFs, being a part of larger traditional finance investment portfolios, are affected by portfolio risk rebalancing and a reduction in exposure to high-risk assets.
Furthermore, BTC’s post-January 2024 rally was not solely due to ETF approvals. Speculations about the impact of spot ETFs on Bitcoin's price also played a part. Therefore, he anticipates a stabilization of the flow and a return of speculation as the market reverts to bullish trending conditions.
There have been theories suggesting a potential Bitcoin supply shock in the wake of the extensive demand for ETFs, massive buying by institutional giants like MicroStrategy, and the steady reduction in Bitcoin reserves on exchange platforms. But as it stands, by the third week of April, ETF demand appears to be slowing down, with successive net daily outflows witnessing a stagnation at the end of March.
Should Bitcoin's price hit critical support levels, ETF demand may bounce back, driven by 'new whales' with a $56,000 on-chain cost basis. Despite the slowed ETF demand, BTC options have seen increased interest, indicating a shift in investment strategy from ‘buy and hold’ to volatility-focused.
Consequently, despite the slowed ETF demand, some industry insiders believe that interest will revive in line with improved market conditions post the halving. Additionally, they point out that ETF interest is not the only indicator of institutional demand for Bitcoin. They highlight the growing global demand for Bitcoin, specifically in countries where traditional currencies are failing as safe value storage or as functional forms of exchange.
Although the idea of a supply shock post-halving was widespread in the past due to considerable inflows into spot ETFs despite GBTC outflows and fresh Bitcoin price highs, the passive ETF flows and the near 10% BTC price drop just before the halving has led many to rethink their short-term supply shock theories. Nevertheless, optimism remains that demand for BTC ETFs may again soar post the halving.
Published At
4/22/2024 4:29:00 PM
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