MW Bitcoin ETFs helped drive the crypto's price higher. That may no longer be the case.
By Frances Yue
Spot bitcoin exchange-traded funds have been an important driver of the cryptocurrency's price since the Securities and Exchange Commission approved them for trading in January - with the excitement around the new ETFs pushing bitcoin to a record high in March.
However, things have started to change.
Last week, bitcoin's (BTCUSD) price rose despite a net outflow of $468 million from bitcoin ETFs, according to data from crypto market maker Wintermute. And in the first three days of this week, bitcoin fell roughly 3%, even though the ETFs saw an aggregate inflow of about $192 million. Bitcoin was trading at around $62,390 as of Thursday afternoon - up 48.5% year to date, but down more than 15% from its all-time high of $73,798 reached in March, according to Dow Jones Market Data.
"The varied demand for bitcoin suggests that the market is maturing and may not necessarily remain strongly correlated with ETF flows in the future," analysts at Wintermute's OTC desk wrote in a recent note.
Chris Kline, chief operating officer and co-founder of Bitcoin IRA, noted that the divergence could be attributed to the fact that ETF holders remain only a limited slice of bitcoin's overall investment base. In total, the spot bitcoin ETFs hold a total of 819,000 bitcoins - representing just about 4.2% of the crypto's total supply, according to data from the Block.
He compared bitcoin ETF holders, in the aggregate, to a so-called whale - an individual or entity that holds large amounts of an asset and may have an outsize influence on price movements with a single trade.
"If the ETFs have a big day of inflows or outflows, it's helpful or interesting to see them as just like a whale choosing to either buy or sell," Kline said in a phone interview with MarketWatch. "That doesn't necessarily mean the rest of the investors are going to do the same thing."
Read: Did bitcoin ETF frenzy drive the crypto to a record? How the experts see it.
Kline added that the differing trading hours for the ETFs and the bitcoin market at large may also have contributed to the divergence. Bitcoin trades 24 hours, seven days a week throughout the year; the ETFs follow the stock market's trading hours, which usually run from Monday through Friday between 9:30 a.m. and 4 p.m., except for certain holidays.
It's also important to pay attention to broader macroeconomic factors as more traditional market investors are getting involved in the crypto space, analysts at NYDIG wrote in a recent note.
Additionally, it's likely that most bitcoin ETF holders are passive investors, while bitcoin's price could be driven more by active investors, according to Will McDonough, chairman and founder of Corestone Capital. Still, as bitcoin sees more institutional adoption, such volatility is likely to decrease, McDonough told MarketWatch.
-Frances Yue
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May 10, 2024 06:00 ET (10:00 GMT)
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