Bitcoin ETFs Emerge Amid Market Chaos: Potential Impact on BTC Price Explored
Summary:
The Bitcoin (BTC) spot exchange-traded fund (ETF) made its debut in a chaotic trading session on January 12. Even with a record $4.66 billion volume in Bitcoin spot-based ETFs, doubts linger about whether this will trigger a Bitcoin price rally above $47,000. Meanwhile, the Grayscale GBTC, which manages over $27 billion in BTC, experienced $1.17 billion of net outflows, offsetting the inflows to other spot Bitcoin ETFs. Despite these mixed trends and uncertainties, the demand for spot Bitcoin ETFs continues, posing implications for prices in light of the upcoming Bitcoin halving in April.
The Bitcoin (BTC) spot exchange-traded fund (ETF) instrument made its inaugural appearance on January 12. The initial trading session was a bit disorderly as investors grappled with undefined inflows, while market makers coped with incongruent timelines for different instruments' liquidation. Nevertheless, the $4.66 billion volume of Bitcoin spot-based ETFs marked a historic high in mainstream finance. However, the question still remains whether this can bolster a Bitcoin price surge past $47,000?
There's some censure regarding Grayscale's GBTC, formerly a Trust fund, now managing upwards of $27 billion in BTC. During the initial three trading days, the entity saw a net outflow of $1.17 billion. Most of it occurred on January 13 and 16, counteracting 86% of the other spot Bitcoin ETF inflow during this time. In concrete terms, this culminates in an aggregate net inflow of merely $157 million in two days.
The bulk of the $782 million net inflow, originally reported by Eric Balchunas, Bloomberg's senior ETF analyst, occurred on the first trading session. Owing to disparate settlement times, arbitrage desks couldn't exit their GBTC positions on January 12. For example, a negative (short) position on CME Bitcoin futures might have been used to balance out the GBTC positive (long) position to capitalize on the discount offered prior to spot ETF approval.
Critics argue that most of the spot Bitcoin ETF inflows have been offset by GBTC outflows; even excluding the first trading day, there's a total net $157 million 2-day inflow for products from BlackRock, Fidelity, Bitwise, Ark/21 Shares, Invesco and other ETFs. The issue at hand for investors is whether the GBTC exodus will persist and whether the cumulative net inflow is maintainable long-term.
What if the trend remains consistent for the subsequent month, meaning GBTC sees an $11.3 billion net outflow while other spot ETF contenders attract a $13 billion net inflow? What are the possible price effects of the $1.7 billion spot Bitcoin listed funds increase in the U.S.? From a trading point of view, the figure appears insignificant compared to the $1.9 billion traded on January 16 alone by these ETFs.
There's an apparent sustained demand for spot Bitcoin ETFs, despite traders' often mistaken correlation between volumes and flow. In every financial market, there are always equal buyers and sellers, but it's impossible to determine if a seller is just closing a previously acquired position or if a buyer is doing the opposite trade in derivative markets or at different exchanges for arbitrage benefits.
Grayscale GBTC's fee is 1.5% in comparison to other contenders offering 0.25% or less; it's likely investors will gradually shift their holdings. Regardless of whether it takes 20 or 120 days for this shift to reach a plateau, investors should focus on who's buying the remaining $157 million over two days.
A remarkable thing is how the market consistently absorbs GBTC sales. Social network user 'Byzantine General' expressed this sentiment on January 17 and highlighted the continuous demand for spot Bitcoin ETFs. Currently, every two days, Bitcoin miners receive $76.1 million worth of newly issued coins, which is slightly double this period’s recent spot ETF net inflow. Moreover, post the Bitcoin halving in April, the price effect will be significantly altered.
It's premature to speculate that the incremental spot ETF purchasing will continually neutralize Grayscale GBTC funds' net outflows. The prevalent data may shift towards diminishing cumulative industry assets under management, inclusive of CME's Bitcoin futures open interest. However, Bitcoin enthusiasts can hope for a bull run above $47,000 once GBTC holdings are depleted or adapted, and the Bitcoin supply side effect is discerned post Bitcoin halving.
This news piece should not be construed as investment advice or recommendations. Every investment and trading activity entails risk, and readers should undertake their own research to make informed decisions.
Published At
1/17/2024 9:23:56 PM
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