Bitcoin ETFs Encounter Setback as Market Cools

The streak of fresh investments in Bitcoin spot ETFs has ended after 71 days, totaling approximately $17.24 billion. Fidelity's FBTC, the current runner-up in the ETF race, has experienced its first outflow, losing $22.6 million, bringing its assets under management down to $9.9 billion. This decline in interest is indicative of a cooling cryptocurrency market and the settling of the initial ETF frenzy.

Bitcoin ETFs Experience Setback in Market Cooling

New York, April 25, 2024 - The cryptocurrency market has witnessed a recent downturn, as evidenced by the pause in fresh investments in leading Bitcoin exchange-traded funds (ETFs). This halt comes after a 71-day streak of consistent inflows totaling approximately $17.24 billion in assets under management (AUM) since these products debuted on January 11th.

Fidelity's FBTC, the second-largest Bitcoin ETF, reported a setback on Thursday, experiencing its first recorded outflow of $22.6 million, reducing its AUM to $9.9 billion, according to CoinGlass data.

This decline in enthusiasm for the two prominent Bitcoin ETFs (excluding Grayscale's GBTC) serves as a key indicator of the cryptocurrency market's cooling trend over the past month. It suggests that the initial ETF frenzy, which contributed to Bitcoin's skyrocketing value, has subsided. Currently trading at around $63,500, Bitcoin has lost approximately 12% of its value since reaching an all-time high of $73,000 in March.

Only one of the 10 actively traded spot Bitcoin ETFs, Franklin Templeton's EZBC, reported inflows on Thursday.

Despite the end of its 71-day daily inflow streak, $IBIT continues to hold records. It ranks first among all ETFs in terms of AUM within the first 72 days of their market debuts. However, analysts suggest that this initial surge may have been overheated and that a cooling period was warranted.

Disappointing inflation data has dampened expectations of Federal Reserve interest rate cuts, and higher borrowing costs tend to reduce appetite for riskier investments such as cryptocurrencies. Additionally, Bitcoin has remained relatively stagnant since early March, partly due to ETF stagnation and the anticipation of the network's "halving" event on April 19th, leading to "buy the rumor, sell the news" trading behavior.

Nate Geraci, president of the ETF Store, told Fortune that ETF inflows typically follow the performance of the underlying asset, so the pause in Bitcoin's price is likely contributing to the short-term hiatus in inflows. However, he emphasized that these products are still in the early stages of adoption.

Geraci noted that many large institutions have yet to authorize their brokers to facilitate purchases of spot Bitcoin ETFs, and registered investment advisors are gradually allocating funds to this category. He believes that inflows in any ETF category will inevitably fluctuate over time.

Despite the recent setbacks, these funds are widely considered a remarkable success, having amassed over $54 billion in AUM in just over three months of trading, introducing Bitcoin-tracked assets to mainstream investor portfolios.

The success of these ETFs is further evidenced by the recent approval by Hong Kong's Securities and Futures Commission for three spot Bitcoin and Ether ETFs, which will begin trading on Tuesday. Other countries are expected to follow suit. Issuer Harvest has waived management fees for its funds, which could potentially trigger a fee war similar to the one witnessed in the United States, where Grayscale recently announced a Bitcoin Mini Trust with ultra-low fees of 0.15% to attract investors from GBTC, which charges 1.5%.