Why tracking bitcoin ETF flows matters. And why it doesn’t.

Those keeping tabs on the crypto industry (this writer included) have been quick to refresh pages of daily bitcoin ETF flow data and digest them.

News headlines have kept segment observers up to date on the money going into, and more recently leaving, these funds.

The pent-up angst over the U.S. Securities and Exchange Commission’s long term refusal to approve spot bitcoin ETFs left many speculating about the potential investor capital these products would attract out of the gate.

There were also considerations about whether this demand would be enough to spur further interest, in order to draw both retail and institutional investors, along with their capital, into the crypto space.

We now have the initial data to answer some of these pressing questions.

On day one, the funds tallied trading volumes of $4.5 billion, and $655 million of net inflows. By two months in, after the category welcomed $1 billion in assets on March 12 alone, the funds’ inflows amounted to $11.1 billion.

The total stands at about the same level today as momentum has slowed in recent weeks.

Continued GBTC outflows have coincided with stalled demand for the category’s most consistent flow-gatherers: BlackRock’s iShares Bitcoin Trust (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC).

And in an unprecedented turn Wednesday, 10 of the funds — including those by BlackRock and Fidelity — each saw outflows, spurring a $564 million exodus on the day.

With this background established, we can now zoom out to examine the broader implications of bitcoin ETF flows.

Bitcoin ETF flow impact

Because bitcoin is a speculative investment, inflows and outflows typically dictate price moves, said Bryan Armour, director of North America passive strategies research at Morningstar.

After all, bitcoin ETFs actually buy and hold bitcoins. The number of bitcoins in circulation will ultimately be capped at 21 million, and the new bitcoin entering the supply dropped by half on April 19.

Ipso facto, bitcoin ETF issuer purchasing in response to demand for the funds was a contributor to bitcoin’s price rally to a new all-time high of about $73,000 in mid-March. The opposite can happen when people sell shares of their bitcoin ETFs.

“ETF flows are meaningful because they provide a glimpse of how a substantial portion of the market that previously lacked straightforward exposure to crypto is behaving,” said David Lawant, head of research at FalconX. “I expect, therefore, ETF flows to continue to influence crypto price action.”

And we know many people care about bitcoin price action.

But what the flows represent, beyond numbers, is also worth noting.

Bitcoin ETF acceptance proved there was untapped demand for crypto and that institutions were willing to jump into the space, Armour told Blockworks.

“That signals support for future growth and interest in the broader crypto market and the future of blockchain technology,” he added.

Ignoring the shorter-term noise

Though bitcoin ETF flows will contribute to BTC price movements, this impact is set to unfold gradually over the coming quarters and years, Lawant said.

“While monitoring these flows is crucial and short-term fluctuations may capture headlines, I think it’s essential to filter out the short-term noise and focus on the factors that are more relevant in the long run,” he noted.

The seven straight days of bitcoin ETF net outflows may cause some alarm to the space’s interest parties. But this reversal was expected, Armour said.

“Demand cannot continue at the rapid pace seen early on for spot bitcoin ETFs,” he told Blockworks. “Demand will become intermittent, but I wouldn’t expect major sustained outflows without a significant price decline.”

Bitcoin’s price stood at about 61,700 at noon ET — up 4.5% on the day and down 4% from a week ago.

Other segment observers took to the platform formerly called Twitter to let new ETF investors know that outflows are a thing that happens, regardless of the underlying asset.

Nate Geraci pointed to year-to-date outflows for State Street Global Advisors’ SPDR Gold Shares (GLD), which stand at about $2.9 billion, according to ETF.com. That comes despite the price of gold being up about 11% from the start of 2024.

“This is what ETFs do,” Geraci wrote on X. “Inflows don’t go up in [a] straight line.”

A little spat broke out when macro strategist Jim Bianco highlighted the latest bitcoin ETF outflows in an X post Thursday. The president of Bianco Research had formerly said that “normies” getting into crypto had been “rugged” following a so-called sell-the-news correction in the weeks after the fund launched.

Bloomberg analyst Eric Balchunas noted that outflows for the day in question (Wednesday’s $564 million of bleeding) roughly represented just 1% of the category’s assets under management.

The outflows over the past few weeks combined to amount to less than 5% of the segment’s total assets, which Balchunas added “is totally normal for [a] risk asset ETF during sell-off.”

“Are you saying yesterday was not a beginning, but an end?” Bianco replied.

Balchunas: could see the ETFs shedding 10% of assets under management if bitcoin’s correction worsens.

“But, it’s a good [question] in that all of this is just beginning if we zoom out,” the Bloomberg Intelligence analyst noted. “These ETFs will be around for years, decades. And they tend to win assets and volume [versus] other vehicles over time, albeit not always in a perfectly straight line.”

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There is only so much you can surmise from bitcoin ETF inflows and outflows, as the data gathered doesn’t shed light on where prices go next, Armour said.

“Will speculators flee during a bear market to the point of creating an existential crisis?” Armour posed. “Will crypto’s integration into daily life support current price levels? I don’t think a framework exists for accurately predicting where crypto will go from here.”

Spot bitcoin ETFs are “just one cog in the bitcoin machine,” Armour added. They represent roughly 4% of bitcoin’s market cap.

“Their rapid ascension had an outsized impact on the price of bitcoin, but the broader bitcoin ecosystem will regain its influence as US ETF flows stabilize,” Armour said.

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