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Bitcoin ETFs See Record Outflows, FOMC Comments Fail to Soothe Market

Last Updated May 2, 2024 9:37 AM
Teuta Franjkovic
Last Updated May 2, 2024 9:37 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • US spot Bitcoin ETFs experienced their largest ever single-day outflow on Wednesday, continuing a trend.
  • Despite the FOMC freezing US interest rates Bitcoin ETFs saw significant outflows.
  • James Seyffart emphasizes that outflows are normal and ETFs are functioning smoothly.

On Wednesday, investors rapidly sold off  US-based spot Bitcoin (BTC) exchange-traded funds (ETFs), marking the fastest pace of outflows yet. This was despite the United States Federal Reserve’s Federal Open Market Committee (FOMC) dismissing any immediate interest rate hikes.

As reported by Farside Investors  and CoinGlass , the 11 ETFs experienced a collective net outflow of $563.7 million, the highest since they began trading on January 11. This continued a five-day downward trend.

Bitcoin ETFs See Unexpected Outflows Despite Rally

Since April 24, these ETFs have seen nearly $1.2 billion withdrawn from them. Leading the outflows on Wednesday was Fidelity’s FBTC, which saw $191.1 million in withdrawals. This signals a potential concern for market optimists as FBTC and BlackRock’s IBIT had previously been net attractors of funds in the first quarter, offsetting the larger, regular outflows from the more expensive Grayscale ETF (GBTC).

American spot Bitcoin exchange-traded funds (ETFs) experienced unprecedented net outflows, including BlackRock’s iShares Bitcoin Trust, which reported its first-ever outflow day.

On May 1, the fund recorded a $36.9 million withdrawal, as reported by Farside Investors. Additionally, nine other Bitcoin ETFs witnessed a total of $526.8 million in outflows.

GBTC experienced the second-largest outflow of $167.4 million, trailed by ARKB’s $98.1 million and IBIT’s $36.9 million. Despite Federal Reserve Chairman Jerome Powell’s net-dovish approach  providing some support to risk assets, including Bitcoin, other funds also saw significant outflows. A dovish stance indicates a central bank’s preference for prioritizing employment and economic growth over excessively tightening liquidity.

As anticipated, the Fed kept the benchmark interest rate unchanged  between 5.25% and 5.5% on Wednesday. During a press conference, Powell remarked that the economy’s strength precludes rate cuts, while dispelling concerns  about potential renewed rate hikes  or liquidity tightening prompted by recent disappointing inflation data.

Additionally, the Fed announced plans to notably reduce its quantitative tightening (QT) program starting June, aimed at tightening liquidity. Meanwhile, the US Treasury unveiled a program  to repurchase billions of dollars in government debt for the first time in over two decades, aiming to enhance liquidity in the bond market.

Record Outflows Coincide with Double-Digit Price Slump

Notably, the Hashdex Bitcoin ETF had no recorded flows, based on preliminary data from Farside . The Fidelity Wise Origin Bitcoin Fund saw the largest single-day outflow, losing $191.1 million, while the Grayscale Bitcoin Trust followed with outflows of $167.4 million.

BTC ETF flows
Credit: Farside Investors

This marks the largest single-day outflow for U.S.-based spot Bitcoin ETFs since their inception in January.

These outflows coincide with a 10.7% decline in Bitcoin’s value over the past week. Despite these significant cryptocurrency outflows, Nate Geraci, president of the ETF Store, highlighted  that traditional assets have also seen substantial withdrawals, with the iShares Gold ETF and SPDR Gold ETFs recording outflows of $1 billion and $3 billion, respectively, this year.

Despite these substantial outflows, gold has seen a 16% increase in its value year-to-date, as Nate Geraci noted .

Bitcoin ETFs Functioning Smoothly Despite Outflows, Analyst Says

Bloomberg ETF analyst James Seyffart observed that despite the outflows, Bitcoin ETFs are “operating smoothly across the board.” He emphasized that both inflows and outflows are typical and should be expected in the normal lifecycle of an ETF.

Similar to other risky assets, Bitcoin reacts strongly to anticipated shifts in liquidity circumstances and experienced a brief surge from $56,620 to $59,430 after Powell’s remarks . Concurrently, the yields on the 10- and two-year Treasury notes declined alongside the dollar index.

However, BTC’s rebound was fleeting, as it retreated to $57,901 by the time of publication . Earlier this week, Hong Kong saw the launch of Asia’s inaugural spot Bitcoin and Ethereum (ETH) ETFs, but they garnered underwhelming volumes, dampening sentiment in the cryptocurrency market.

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