Bitcoin ETF: Will the Latest Correction Put the Brakes on Demand?

Bitcoin flows into various ETF vehicles were unstoppable during the run-up to the all-time high. In fact, BlackRock ETF and other funds partially drove the bull run in Q1 2024. The Bitcoin ETF trend is turning as Bitcoin goes through a significant correction from all-time highs. 

BTC dipped to $57,305.90 after a previous slide from the $65,000 tier. Briefly, the leading coin was even under $57,000. The question now is whether ETF buyers will be ready to buy the dip, or get cold feet and choose other investments. 

Near the lows, BTC volumes more than doubled, reaching $49B in 24 hours. However, the level of exchange activity doesn’t directly reflect the interest of mainstream finance investors in Bitcoin products. 

Bitcoin ETF Shows Signs of Diminished Inflows

As of May 1, Bitcoin ETF funds showed net outflows, with no fund drawing in net inflows. Even the short-term dip showed that ETF buyers are not the type to “hodl” during turbulent times. 

Bitcoin ETF Flow (US$ million) – 2024-05-01

TOTAL NET FLOW: -563.7
(Provisional data)

IBIT: -36.9
FBTC: -191.1
BITB: -29
ARKB: -98.1
BTCO: -5.4
EZBC: -13.4
BRRR: -9.7
HODL: -6.5
BTCW: -6.2
GBTC: -167.4
DEFI: 0

For all the data & disclaimers visit:https://t.co/4ISlrCgZdk

— Farside Investors (@FarsideUK) May 2, 2024

BlackRock iShares Bitcoin, the most high-profile ETF with the largest inflows, also showed the biggest net slide in the past day. This product also drove the high-level exposure for Bitcoin, becoming the biggest fund to hold the equivalent of 273,824 BTC. 

# of Bitcoin held by ETFs, as of 5/1 👇 pic.twitter.com/cxl7ZdVtPc

— HODL15Capital 🇺🇸 (@HODL15Capital) May 2, 2024

For now, US-based ETF show the biggest outflows, while the smaller international funds in Canada, the EU, and Hong Kong show no net withdrawals. 

Grayscale Drives Downward Trend

The Grayscale collection of funds could serve as an indicator of market sentiment. In the past, Grayscale traded at a big premium or discount to the spot BTC price on centralized exchanges. 

Now, Grayscale seems to be affected by market panic in the same way, adding to the selling pressure. Activity tracking shows Grayscale is divesting some of its BTC. The Grayscale funds are a mix of assets, where actual BTC makes 10% of the share price. Grayscale buyers do not hold physical Bitcoin outright, although Grayscale keeps coins in custody and can easily affect the market. 

🚨🚨 #GRAYSCALE DUMP ALERT 🚨🚨
😱 Biggest Bitcoin sell-off in 18 days! 📉
🏦 Grayscale offloads 2,930 BTC
🆘 Dump surpasses my purple trend line
💸 Unlikely other ETFs can match inflow#Bitcoin pic.twitter.com/EZugXTBAWM

— InvestAnswers (@invest_answers) May 1, 2024

On Wednesday, there are more signs Grayscale may not be finished with the divesting. A large transaction from Grayscale wallets landed on Coinbase, with a high probability of more selling. The transactions sum up to 4,000 BTC waiting to be divested. Grayscale moves its funds in portions and has accumulated a large selling position for a few hours. About a day ago, Grayscale started with the transfer of 2,100 BTC and continued to add funds to its Coinbase wallet.

🚨 BREAKING 🚨

GRAYSCALE HAS JUST TRANSFERRED 4,000 BTC WORTH $250 MILLION TO COINBASE TODAY.#bitcoin #btc pic.twitter.com/p6WkrCEdOZ

— Constantin Kogan (@constkogan) May 2, 2024

Grayscale is not an outlier, but an indicator of a wider trend. However, the Grayscale selling surpasses that of several smaller funds combined. 

May 1 Update:#Grayscale decreased 404 $BTC(-$23.2M) and currently holds 296,714 $BTC($17B).

9 ETFs(Including #Grayscale) decreased 1,950 $BTC(-$111.93M).#Blackrock has not added $BTC for 5 consecutive days.https://t.co/UZZeBE5TTa pic.twitter.com/idDNmsBT98

— Lookonchain (@lookonchain) May 1, 2024

In general, ETF are supposed to keep their coins in a cold wallet and hold on behalf of their users. But traditional traders seem to devalue BTC right now. 

Grayscale’s GBTC fund is trading at a discount again, showing waning interest in Bitcoin as an investment. GBTC reached levels equivalent to $52,000-$50,000 per BTC. 

Bitcoin Sentiment Switches to Fear

The Bitcoin fear and greed index slid into “fear” territory for the first time in the past three months. Now standing at 48, the index dipped from “extreme greed” just four weeks ago. The dip into “fear” followed the 20% correction from the all-time high. 

BTC prices are setting up a fearful scenario where the bull market has ran its course. The main expectation for 2024 was to continue expanding, with new all-time highs possible by the end of the year. 

At this moment, BTC is undergoing a fight between external investors and the core of loyal “hodlers”. Selling the coins of ETF may cause another “bear whale” event, where other buyers risk with the current dip. 

The selling happens in a post-halving market, where BTC physical coins may become more scarce. The Binance trading pair BTC/USDT is showing an almost perfect balance between buyers and sellers, with exchanges happening above the $57,000 level. So despite the fear, demand for actual BTC is here to stay, and the markets may absorb the newly introduced coins.