Bitcoin ETFs Inflows and Outflows: How They Impact BTC Price
The introduction of Bitcoin exchange-traded funds (ETFs) on U.S. exchanges in January 2024 has had a significant impact on the Bitcoin market. It has opened the doors for institutional investors who were previously hesitant due to regulatory uncertainties and the complexities of trading and storing cryptocurrencies. This has allowed them to enter the Bitcoin market in a safe and regulated manner. As a result, the price of Bitcoin reached an all-time high of $73,750 in March 2024.
After the launch of Bitcoin spot ETFs, there was a significant influx of investments. However, in April and early May, there were outflows of over $1.2 billion. Despite this downturn, there has been a strong recovery in the past two weeks, with $1.3 billion flowing back into these ETFs. This recent influx has compensated for the losses in April, bringing their total net gains since launching to approximately $12.3 billion.
Recent research conducted by Mieszko Mazur and Efstathios Polyzos examines the effects of these newly established Bitcoin spot ETFs on the price of Bitcoin. The research suggests that net flows to Bitcoin spot ETFs have a strong predictive power on BTC prices. According to the research, a one standard deviation increase in net flows (about $3 billion) results in a Bitcoin price appreciation of $9,300.
The research also explores the relationship between Bitcoin price movements and ETF trading volumes. It claims that increases in Bitcoin prices lead to abnormal trading volumes in the ETFs, highlighting the interconnected nature of price and volume dynamics.
An analysis reveals that 95% of Bitcoin price returns are generated outside of US exchange trading hours. This suggests that significant price movements are driven by market participants who are active outside the ETF trading window, such as international traders and algorithmic trading systems.
This finding is in line with a report from Bloomberg in April, which showed that automated trading protocols in Asia react to flow data from US ETFs. These trading bots can analyze and react to the data, resulting in buying or selling actions. This pattern of flows helps explain why market returns during Asian trading hours were particularly strong in February and early March but weakened later in March. The impact of algorithmic protocols dumping Bitcoin extends beyond the spot market and affects the derivatives market as well.
Some analysts believe that the impact of spot Bitcoin ETF inflows and outflows on Bitcoin’s price has not been transformative. They suggest that other factors, such as macroeconomic news, also play a significant role in price performance. Therefore, it’s important to monitor investment flows, but they should not be the sole focus for short-term decision-making.
Despite these differing opinions, a significant number of major US financial institutions have embraced spot Bitcoin ETFs. According to 13F filings submitted to the SEC, banks, investment managers, hedge funds, and professional firms have invested in the spot Bitcoin ETF market. Notable investors include Millennium Management, Susquehanna International Group (SIG), Bracebridge Capital, Boothbay Fund, Morgan Stanley, Pine Ridge Advisers, Aristeia Capital, Graham Capital, and Crcm LP.
With the introduction of Bitcoin ETFs, institutions have shown a growing interest in Bitcoin, indicating a positive outlook for the cryptocurrency’s future.
