Experts Discuss the Adverse Impact of ETFs on Bitcoin’s Price

Despite high trading volumes of spot Bitcoin ETFs, the asset’s price is showing a negative trend. On the evening of January 18, the price of the leading cryptocurrency fell below $42,000. 

Meanwhile, the assets under management of Bitcoin-based exchange-traded funds in the US reached 632,000 BTC, or about $27 billion. This instrument has already surpassed silver-based products in this regard.

Glassnode believes that holders triggered a pullback from the $49,000 highs by taking profits, including on derivatives, following ETF news.

Consolidation

In the short term, a period of selling was expected after the approval of Bitcoin funds, stated Nansen’s chief researcher Aurélie Barter in a conversation with The Block.

“At the moment, this looks like price consolidation before a resumption of growth,” she added. 

This is evidenced by risk management indicators from the analytics company. One of them points to a low percentage of stablecoins compared to other assets in the wallets of “smart money”.

Barter noted a possible redistribution of Bitcoin supply from whales to new buyers, making the market structure “less skewed” towards large holders. 

According to her, there has been much speculation about a decrease in Bitcoin volatility following a potential influx of new liquidity: 

“For the first cryptocurrency, we would expect some similar effect, but since this asset class remains speculative, large drawdowns are likely to still occur.” 

The analytics firm is also concerned about potential actions by the US Federal Reserve, which “may disappoint markets by lowering interest rates less than expected.”

Fund Pressure

According to a report by JPMorgan, the price of digital gold may correct further if Grayscale’s GBTC fund investors continue to take profits. 

Last week, the outflow from the product amounted to $1.5 billion — analysts expect it to increase to $3 billion. If the forecast is confirmed, Bitcoin will maintain a negative trend in the coming weeks. 

JPMorgan noted that profits are being taken by investors who bought GBTC at a significant discount last year. 

“[Investors] made significant profits after converting the trust into an ETF, fully exiting the Bitcoin space rather than switching to cheaper spot ETFs,” the company emphasized.

The outflow of funds also puts additional pressure on the Grayscale fund, forcing the issuer to reduce the management fee. Experts believe the current fee of 1.5% is “too high” compared to products from other companies.

Meanwhile, Rachel Aguirre, head of BlackRock’s iShares products in the US, stated that the company is seeing inflows into its IBIT from various investors.

When asked if funds are coming from GBTC, Aguirre emphasized “interest from both retail and independent market participants.”

According to Bloomberg exchange analyst Eric Balchunas, BlackRock’s instrument leads in terms of fresh capital inflow. 

LATEST: Day Four was a good one, the ROLLING NET FLOWS grew to +$1.2b after the Newborn Nine pulled in $914b on Wed, by far their best day yet, overwhelming the $450 out of $GBTC. The ‘Nine’ have now taken in $3b and traded $5.4b in first four days (abnormally high #s). $IBIT is… pic.twitter.com/mYBLggYlYK

— Eric Balchunas (@EricBalchunas) January 18, 2024

In the first four days, IBIT’s volume increased by $1 billion. The second largest growth was seen in Fidelity’s fund (FBTC) — $882 million. The net flow for all spot Bitcoin ETFs was $1.25 billion.

JPMorgan analysts also expressed skepticism regarding the approval of SEC spot Ethereum-ETH in May this year, but they do not rule out a positive outcome. 

“In any case, given Ethereum’s transition from Proof-of-Work to Proof-of-Stake and the negative impact this transition has had on network decentralization, ETH now resembles other cryptocurrencies that the regulator considers securities,” added JPMorgan.

On January 19, the SEC postponed its decision on Fidelity Investments’ application to launch a spot Ethereum ETF by 45 days — until March 6. 

JPMorgan analyst Nikolaos Panigirtzoglou stated that the Commission first needs to classify ether as a commodity, not a security. He estimated the probability of this by May at no more than 50%. 

Earlier, BlackRock CEO Larry Fink stated that he “sees value” in a spot Ethereum fund, calling it a step towards tokenization.