Has the Bitcoin ETF Rally Come to an End? Here Are the Key Factors Causing the Recent Market Deceleration
The crypto market’s recent surge, fueled largely by the increase in investments into cryptocurrency exchange-traded funds (ETFs), appears to be losing steam. The Kaiko Report sheds light on the factors behind this shift and what it means for investors.
The ETF rally, which has been a major driving force behind the crypto market’s recent upturn, has seen billions of dollars flowing in since its launch in January. However, ETF inflows and the broader Bitcoin rally have experienced a slowdown since April. BlackRock’s IBIT, a prominent ETF, recorded its first-ever daily outflow of $37 million last week, ending a 71-day streak of inflows. Additionally, net flows across all ETFs have steadily declined since January.
Several factors may be contributing to this deceleration. Firstly, the initial excitement surrounding the launch of Bitcoin ETFs may be waning as investors adopt a more cautious approach. Secondly, broader market conditions, such as interest rate policies and economic data, have an impact on investor sentiment. Despite the recent slowdown, there are reasons for optimism.
The downturn in ETF inflows seemed to reverse on Friday, as Grayscale’s GBTC and other ETFs experienced strong inflows following the release of U.S. jobs data that indicated a potential interest rate cut by the Federal Reserve. This marked the first time that GBTC saw positive inflows, suggesting a potential resurgence of investor interest.
On a global scale, competition in the ETF market is heating up. Last week, three Chinese asset managers—Bosera Asset Management, Harvest Global Investments, and China Asset Management—launched Bitcoin and Ethereum spot ETFs in Hong Kong. Although the combined trading volume of $12.7 million on the first day was significantly lower than the $4.6 billion traded by U.S. spot ETFs on their launch day, it’s important to note that the Hong Kong ETF market is much smaller than its U.S. counterpart.
Interestingly, ChinaAMC’s Bitcoin ETF saw the highest volume despite its higher fee of 99 basis points. Meanwhile, ETH ETFs accounted for 23% of the total first-day volume, with BTC making up the majority at 77%. Overall, there seems to be robust demand for crypto exposure in the Asia-Pacific (APAC) region.
While the momentum for spot ETF inflows may have slowed, institutional interest in tokenizing real-world assets (RWA) is gaining traction. BlackRock’s BUIDL fund recently surpassed $300 million, surpassing Franklin Templeton’s BENJI as the largest U.S. Treasuries tokenized fund. Ondo Finance played a significant role in this surge by planning to transfer $95 million into BlackRock’s fund.
In conclusion, although the recent slowdown in ETF inflows raises questions about the longevity of the ETF rally, there are indications of resilience and potential for recovery. Institutional interest in RWAs and the rebound in ETF inflows following the U.S. jobs data suggest that the crypto market may still have room to grow. However, market conditions and investor sentiment will play a crucial role in determining the trajectory of the ETF market and the broader crypto rally.