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Waning Outflows, Chinese Applicants, and Google Ads – How the BTC ETFs are Performing

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BTC ETFs

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Last time we reported about Spot Bitcoin ETFs' performance earlier last week, the crypto market was in the red as their approval continued to be a ‘sell-the-news' event, and heavy outflows from Grayscale weighed down the price. But that's no longer the case!

After falling under the psychologically key level of $40,000 for the first time since December, the price of Bitcoin went back to $44K on Tuesday before seeing a slight drop today.

At the time of writing, BTC/USD has been trading at $42,593, down 1.9% in the past 24 hours but up 6.4% in the past seven days and over 86% in the past year. Bitcoin's green has the total market cap surpassing $1.714 trillion while managing $70.4 bln in trading volume, as per CoinGecko.

The latest drop in price resulted in 51,942 traders getting liquidated in the past 24 hours, with the total liquidations coming in at $139.34 million, as per the data reported by CoinGlass. Bitcoin accounted for $32.9 mln of this and Ethereum $29.35 mln. The majority of liquidations happened on Binance, followed by OKX and Bybit.

Meanwhile, Bitcoin's open interest (OI), which is the total number of outstanding derivative contracts not settled, has increased from $16.15bln a week ago to now $17.57bln.

In the past 24 hours, however, the OI has dropped 5.68% to 412.08K BTC. CME Group led these losses as its OI dropped 12.65% to 104.60K BTC ($4.45 bln).

This drop comes as an average of 66,000 contracts are being exchanged on a daily basis in January at CME, as per The Financial Times. This marks a new high and an almost 50% month-to-month rise. The Bitcoin OI on CME surged to about $6 bln the day ETFs received the green light in the US. All this activity has CME taking Binance's place as the world's largest Bitcoin derivatives platform. 

This heavy futures trading could be about arbitrage opportunities in BTC price swings. Traders, per the FT, made use of the “cash and carry” strategy, where they sell BTC contracts at a higher price (as they typically trade at a premium), all the while holding the underlying BTC as a hedge. As the expiration date on these futures contracts approaches, prices draw closer to each other, allowing the trader to enjoy huge returns with low risk. 

Factors Affecting Bitcoin Volatility 

This volatility comes ahead of the Federal Open Market Committee (FOMC) meeting, which is underway on Jan. 30-31. The final decision from the central bank on rate hike will be announced by Fed Chairman Jerome Powell on Thursday at 2 pm ET. Meanwhile, the minutes of the meeting will be released on Feb. 21.

With inflation showing signs of slowing down and US GDP expanding at a 3.3% annualized rate in quarter four on the back of strong consumption signals a relatively strong economy, the Fed will likely keep the rates unchanged at 5.25%-5.50%. Even at its next meeting on March 19-20, the Fed may not start cutting rates, with the market seeing a 39% chance of no rate cut.

The US central bank's policy decisions have been volatility-inducing events for Bitcoin, with the asset's value falling following rate hikes. In contrast, market observers expect the end of quantitative tightening and Fed officials turning dovish to be bullish for Bitcoin.

Besides this, Bitcoin's price rose to a three-week high this week as the exchange netflow of BTC remained negative in the past week. This shift from centralized exchanges to self-custody could be seen as a bullish trend as it brings down the selling pressure in the immediate term.

Bitcoin's supply on exchanges has been trending downwards since August. At the time, the exchange supply was 6.05% which over the next five months has come down to 5.40%. BTC has been consistently leaving crypto trading platforms since the US Securities and Exchange Commission (SEC) approved the first Spot Bitcoin ETFs on Jan. 10.

Bitcoin & Ethereum Supply

Despite the drawdown of 20% in the cryptocurrency's prices, outflows from Coinbase alone consistently totaled over 10K BTC per day since the launch of the ETFs. 

BTC balances on exchanges tracked by Glassnode have been rising throughout January only to reverse on Jan. 23. Since then, the balance has become lighter by 7,400 BTC ($321 million). Overall, outflows and inflows are becoming more balanced now.

“The Bitcoin market continues to show resilience, recovering from the initial sell-the-news drawdown following ETF approvals. In particular, the market is working through the significant supply overhead created by investors rebalancing capital out of the GBTC product since its conversion.”

– Glassnode, a blockchain data and intelligence platform

In addition, the market capitalization of stablecoins has been increasing, which is an indicator of rising buying power. Crypto data provider Santiment noted that the combined market cap of USDC, USDT, DAI, TUSD, USDP, and BUSD has surged $9.42 bln in a matter of four months, “typically a necessary ingredient for bullish conditions.”

According to CoinGecko, the largest stablecoin, USDT, saw its market cap surging by $4.3 bln this year while USDC's increased by $2.28 bln.

What About Spot Bitcoin ETFs' Netflow?

A big reason for the latest price movement in the price of the largest cryptocurrency by market cap is the improvement in the flows of its spot exchange-traded funds (ETFs). After all, massive outflows from Grayscale's Bitcoin fund (GBTC) were the reasons behind the recent decline in BTC's price from the $49,000 high it hit after the approval. 

Outflows from Grayscale have been gradually going down after seeing a significant amount of BTC flowing out in the first seven days after it made its debut as an ETF on Jan. 11. 

Jan. 22 marked the day with the highest amount of outflows at $641 mln for GBTC. Since then, it has been in a constant decline up until this week. 

On Monday, Grayscale's outflow was $192 mln, followed by $221 mln on Tuesday, though they are still among the lowest except for the day GBTC began trading when only $95 mln was recorded in flowing out of Grayscale's flagship product, was launched in 2013.

According to the Grayscale website, the fund still has 492,112 BTC left, though significantly down from the nearly 620,000 BTC it was holding prior to the ETF launch.

Now that investors are finally free to sell their shares, they are taking full advantage of this opportunity. As a result, the GBTC discount has all but disappeared, currently at 0.13%, which was last seen in early 2021.

This discount, which was once 50% during the bear market low of 2022, is now non-existent because of arbitrage traders, said Bitfinex head of derivatives Jag Kooner, adding: 

“These investors have been waiting for a long time to realize these profits.”

Another reason is Grayscale's high 1.5% fees compared to its competitors, who are currently charging fees ranging from 0.2% to 0.9%. Kooner said:

“This difference in fees has incentivized investors to move their funds from GBTC to lower-cost Bitcoin ETF options.” 

Investors are simply looking for cost-effective ways for Bitcoin exposure, and many ETF issuers have also waived off fees for a certain period, which is further motivating this migration.

While Grayscale's outflows have been going down, inflows in other ETFs continue to remain positive, which has the net flow in green. So far, this week has been positive, with $254 mln and $247 mln recorded in net flows on Jan. 29 and 30, respectively. 

Among all the Spot Bitcoin ETFs, asset manager giant BlackRock is leading the race, with IBIT's total assets under management (AUM) currently standing at $2.769 bln. BlackRock is followed by Fidelity's FBTC, whose AUM is $2.2 bln, and at 3rd place is Bitwise's BITB with $634 mln. Then comes Ark's ARKB ($662 mln), Invesco's BTCO (307 mln), Valkyrie's BRRR ($115 mln), VanEck's HODL ($128.3 mln), WisdomTree's BTCW ($11.3 mln), and finally Franklin Templeton's EZBC ($62 mln), as per BitMEX Research.

Meanwhile, crypto investment products continue to post outflows. The second consecutive week of outflows this year was $500 million, according to CoinShares' latest weekly report. Its head of research, James Butterfill, noted that recent price declines prompted by the substantial outflows from Grayscale have likely prompted further outflows from other regions.

New Players Looking to Join In

Now, six out of the total thirteen days since nearly a dozen Bitcoin ETF applications were approved and then started trading, the flows have been positive. So, these inflows are finally helping to outstrip GBTC outflows, which means Grayscale may not affect Bitcoin's price going forward anymore. 

Already, net flows turning positive has the price of Bitcoin hitting its highest level since the day after these Bitcoin ETFs began trading.

BlackRock and Fidelity spot bitcoin ETFs have also been coming close to surpassing Grayscale's fund in terms of daily volume for the first time since the products began trading more than two weeks ago. Together, these three issuers have been dominating the total trading volume, at times accounting for about 90% of all buying and selling activity. 

Amidst this, in an attempt to attract investors, Invesco and Galaxy Asset Management lowered the fee for BTCO by almost 36% to 0.25% to be in line with most rivals. These fee wars, according to Bitwise CIO Matt Hougan, are “a massive win” for mainstream investors who are finally able to access Bitcoin via ETFs in a wrapper they are familiar with. 

Calling the ETF approval a “huge success” and a symbol of “how far crypto has come,” Hougan said:

“This is a necessary milestone on the path to where Bitcoin is going.” 

The approval brings more regulatory certainty for the sector and will introduce a huge swath of people to Bitcoin for the first time, according to him. Hougan added in an interview with CoinDesk:

“We are really optimistic that these products are going to unlock a lot of demand because of these cost savings for retail and the security for institutional.” 

With the huge success of these products, many are now discussing the potential involvement of Charles Schwab, which has made Eric Balchunas, the lead ETF analyst at Bloomberg, say:

“Don't sleep on Schwab; they're never first to market in anything, but they make back impact when they come in.”

While new ETF contenders are looking to join, Global X has withdrawn its application for spot Bitcoin ETF. The ETF provider, which had about $51bln in AUM as of Dec. 2023, is the first among those that applied for a spot in Bitcoin ETF for approval last year to do so.

Schwab to enter spot bitcoin ETF race?

Amidst this, a major Chinese asset-management company, Harvest Global Investments, applied for a Spot Bitcoin ETF with the Securities and Futures Commission (SFC) in Hong Kong. Then there's Venture Smart Financial Holdings, a Hong Kong-based firm that is also planning to apply and hopes to start trading in Q1.

Venture Smart Financial, along with Harvest and RD Technologies, are also in discussions with regulators regarding the city's planned stablecoin sandbox. Hong Kong's regulators have published proposals for supervising stablecoin issuers through a licensing regime.

This may continue in other countries like Australia, the UK, Singapore, and Japan as well in an attempt to prevent the flow of funds to freshly launched products in the US. 

Amidst this, Google has made changes to its advertising guidelines to now allow cryptocurrency trusts such as Bitcoin ETFs to promote their products on its platform. Google's announcement about the permissible range of products describes them as financial instruments enabling trading shares in funds holding substantial crypto assets.

This could potentially amplify the ongoing momentum surrounding these financial instruments by allowing the ETF issuers a broader reach and opportunity to connect with a wider audience.

Already, BlackRock, Franklin Templeton, and VanEck have launched advertising campaigns on Google for their spot Bitcoin ETFs, as Google searches for queries like ‘spot Bitcoin ETF' or ‘Bitcoin ETF' reveals.

What's Ahead for Bitcoin and Crypto Market?

The price of the crypto king has been on an uptrend since September in anticipation of the Spot Bitcoin ETF approval, which eventually came in January 2024 after a decade-long battle. According to JPMorgan's Nikolaos Panigirtzoglou, the ETFs will help in the process of Bitcoin price discovery, much like in traditional financial systems where these products are more widely used.

Many market analysts now expect Bitcoin price to fall to $35k in the short term after this rally. Meanwhile, some are far more bearish, with a Deutsche Bank research report revealing that retail is expecting the price to drop below $20K. 

The German lender conducted a survey between Jan. 15 -19, under which it questioned 2,000 individuals in the US, UK, and the Eurozone. One-third of survey participants believe BTC will drop below $20,000, while about 15% of respondents say the price will range between $40,000 and $75,000 by the end of the year.

The survey further revealed that the majority of participants (42%) still “anticipate its disappearance, while 39% believe that Bitcoin will continue to exist in the coming years. This could be due to a lack of understanding of crypto, as two-thirds of consumers were reported to have little or no understanding of digital assets, as per the bank's survey results.

If Bitcoin's price shows weakness, it would reflect poorly on the price performance of altcoins. However, for the second-largest cryptocurrency, Ethereum, regulatory approval for a spot ETF from the SEC could keep things positive. According to a Standard Chartered Bank report, ETH's price could rise nearly 70% from current levels and hit $4,000 by May on the back of such a win.

As of now, ETH is trading around $2,300, up 46% in the past year while down about 53% from its all-time high (ATH) of almost $4,880.

Led by research head Geoff Kendrick, the Standard Chartered analysts expect the agency to approve it on the first final deadline, which is May 23, as it sees “no fundamental reason” for the regulator to treat Ether differently than BTC. Both Fidelity and BlackRock have applied for a spot Ethereum ETF.

As per the report, the market currently underestimates the odds of approval. Additionally, ETH is expected to face less selling pressure because Grayscale's Ethereum Fund (ETHE) accounts for a smaller share of ETH's market cap than GBTC. Not to mention, fewer shares are held by the FTX bankruptcy estate, which sold $1 bln worth of its GBTC shares and was a major force behind its sizable sell-off.

Besides the Spot ETH ETF, the Bitcoin halving event, which is expected to occur in April, is the biggest catalyst the market is looking at for future price action. The scheduled event is anticipated to push Bitcoin to new highs and, in turn, the broad crypto market. 

Click here to learn all about investing in ETFs.

Gaurav started trading cryptocurrencies in 2017 and has fallen in love with the crypto space ever since. His interest in everything crypto turned him into a writer specializing in cryptocurrencies and blockchain. Soon he found himself working with crypto companies and media outlets. He is also a big-time Batman fan.