Unraveling of U.S. Bitcoin Exchange-Traded Funds Continues with Record Outflows

The U.S. spot Bitcoin exchange-traded funds are facing a significant challenge as outflows were recorded from every ETF for the first time, resulting in the greatest losses since trading began in January. According to CoinGlass data, a total of $563.7 million exited the funds on Wednesday, continuing an almost-two-month decline that has seen around $6 billion in losses in the past four weeks, leading to a drop in assets under management of around 20%.

BlackRock’s IBIT, the most successful fund with $17.24 billion in assets under management, also recorded outflows for the first time, with $36.9 million worth of shares liquidated. Fidelity’s FBTC and Grayscale’s GBTC, the other two largest funds, saw $191.1 million and $167.4 million in losses, respectively.

The main reason for the funds retracting is the declining value of the underlying asset, Bitcoin. After reaching an all-time high of $73,000 in March, Bitcoin has fallen almost 20% and is now trading near $59,000. This price correction has been influenced by various factors, including investors shorting Bitcoin after the April 19 halving, miners selling surplus reserves, and the Federal Reserve’s dovish fiscal policy keeping interest rates high.

Eric Balchunas, Bloomberg’s senior ETF analyst, noted that while the recent outflows are challenging, they are typical in the early stages of an ETF. He believes that the assets and flows will eventually recover over the course of the year, as long-term investors continue to hold on.

The recent drop in Bitcoin serves as a reminder to ETF investors of the asset’s volatility and challenges in comparison to traditional stores of value like gold. While a slowdown in the initial ETF frenzy may be expected, the prolonged stalling of the funds raises questions about their future growth and access to major investment platforms.

In Balchunas’s view, while ETFs provide easy access to Bitcoin, mainstream investors still need more reasons to buy the token. He emphasized that the underlying asset must remain the main focus for investors, similar to how music is the main product on a platform like Spotify.

Overall, the unraveling of the U.S. spot Bitcoin exchange-traded funds highlights the challenges and uncertainties facing the cryptocurrency market, as investors navigate through a volatile and evolving landscape.