Bitcoin ETF outflows could crush Bitcoin bull market

The price of Bitcoin surged over 130% in the month leading up to the approval of Bitcoin ETFs, trading above $45,000 USD in early January – the first time since April 2022.

However, since the green light from the United States Securities Exchange Commission (SEC) on Wednesday, the Bitcoin price has fallen by around 10%. That’s despite 11 new spot Bitcoin ETFs commencing trade the following day.

Why has the Bitcoin price fallen?

The price action is true to the ‘buy-the-rumour, sell-the-news’ theory. But there could be more to this Bitcoin price fall than just market psychology.

Many traders have been caught off guard by unexpected Bitcoin supply hitting major exchanges.

On Friday, Grayscale, the world’s largest cryptocurrency asset manager, transferred 4,000 Bitcoins worth around $180 million to the Coinbase Exchange.

The transfers came from four wallets associated with the $26 billion Grayscale Bitcoin Trust.

The Trust – which was launched as an unlisted Bitcoin Trust for accredited investors in 2013 – was converted to an ETF (trading as the Grayscale Bitcoin Trust ETF) following the SEC approval.

When unlisted funds are converted to listed vehicles it is common for investors to dump their holdings, taking advantage liquidity offered by the open-ended ETF structure and market conditions.

Bitcoin price
Source: WhaleWire on Twitter

Preliminary data viewed by Asia Markets on Friday night shows the Grayscale Bitcoin ETF (NYSEARCA: GBTC) has recorded close to $580 million in outflows since it began trading on Thursday.

Experts are tipping the selling pressure to continue.

“GBTC held Bitcoin that has been locked up for years with no option to be sold. As soon as the redemption option opened, for the first time people are starting to exit – as they exit the Bitcoin must be sold on the market,” said cryptocurrency trader Ran Neuner.

Neuner said if just 20% of GBTC assets are redeemed, it would lead to $5 billion in on-market sell orders, which is significant for the global Bitcoin market.

“The issue is, I doubt that the ETF providers have this much demand as quickly,” he added.

Grayscale is an early indication of the pressure ETF unit selling can put on the price of Bitcoin – a consequence of the institutionalisation of the asset class few discussed amid the hyped-up lead-up to the approval of Bitcoin ETF’s by the SEC.

Bitwise ETF leads to pack

Grayscale was one of 11 new Bitcoin ETFs listed in the US during the week, following the SEC approval.

It was the Bitwise Bitcoin ETF (NYSEARCA: BITB) that topped the tables, attracting $238 million from new investors. The Bitwise Fund offers the lowest management fee (0.20%) of all the new spot Bitcoin ETFs, and the asset manager is offering a 0% fee period for six months on the first $1 billion in assets.

Bitcoin price
Source: BitMex Research on Twitter

In total, the 11 new Bitcoin ETFs recorded $655 million of inflows on the first day of trade – a more subdued entry to regulated stock exchanges than many anticipated.

Related story: Why This Hedge Fund Manager Owns Bitcoin. Chris MacIntosh tells Asia Markets, “I want to own it (Bitcoin) because I want something outside of the financial system that I don’t have to rely on any custodians or anyone else to own it. It’s akin to owning gold and sticking those bars in your safe.”