Will wider macro factors continue to affect Spot Bitcoin ETFs?

Will wider macro factors continue to affect Spot Bitcoin ETFs?

Following on from the US Federal Reserve’s June decision to keep rates on hold and new economic projections suggesting a higher real neutral rate and only one cut this year, cryptocurrencies have been on a downward trajectory. Digital asset exchange-traded products and funds faced outflows of $600 million, the largest since 22 March, according to a 17 June report by CoinShares. The outflows were predominantly from Bitcoin investment vehicles, which saw an exodus of $621 million. In contrast, short Bitcoin funds experienced modest inflows of $1.8 million. And the exodus from Spot Bitcoin ETFs has continued, with data from Farside indicating that Spot Bitcoin exchange-traded funds in the United States have seen four consecutive days of outflow, with outflows of about $714.4 million since the Fed meeting on 12 June. The Spot Bitcoin ETF products' cumulative total net inflow since their listings was $14.8 billion on 18 June, down  from their peak of $15.69 billion on 7 June. The products recorded a 19-day streak of inflows until 7 June.

The hit to Bitcoin from the Fed decision and the outflow from Spot Bitcoin ETFs is reflected in the holdings of EXANTE’s Professional and Institutional clients who saw a smaller change in the value of their holdings than the wider global community at -3.3% vs -5.1% respectively.

Despite the drop in the value of Bitcoin, currently at almost -6% over the past 7 days and the significant outflows experienced last week, EXANTE’s Professional and Institutional clients remain positive about the further potential of Spot Bitcoin ETFs. They appear to believe, as Franklin Templeton CEO Jenny Johnson argued in early June, that institutional involvement is still nascent. She suggested that a more robust wave of institutional interest and capital deployment is likely to occur in a subsequent phase of investment. They continue to move away from Bitcoin CFDs into these newer Spot Bitcoin ETF products, increasing their positions to 52.9% of new Spot Bitcoin ETFs by 16 June from 51.9% on 2 June. They also reduced their holdings of Bitcoin CFDs from 43.8% on 2 June to 42.7% by 16 June.

However, despite the doom and gloom there may be good reasons for EXANTE Institutional Investors and Professional clients to be more positive about future prospects for Bitcoin and Spot Bitcoin ETFs: inflation is continuing to fall in the US with core inflation in May coming in at +0.2%, its lowest level since October 2023 while the annual rate of core inflation came down to +3.4%, the lowest since April 2021. And even though Fed policymakers are remaining cautious, they are acknowledging that the prospect for rate cuts is growing. Richmond Fed President Thomas Barkin characterised the May CPI report as highly encouraging, asserting that "we are clearly on the back side of inflation"  while Fed Governor Adriana Kugler expressed the likelihood of appropriate rate cuts this year, highlighting consumers' influence in driving businesses to compete on prices and the deceleration of business costs, including wages. 

Therefore, while the latest Fed meeting does highlight the inherent volatility of cryptocurrencies, there are still hopes, as expressed in a new report by AllianceBernstein, that this may only be a temporary blip, and that markets are on the cusp of further institutional adoption. In that report, as noted by Coindesk.com, analysts Gautum Chhugani and Maihka Sapra wrote “we see bitcoin ETFs as on the cusp of approvals at major wirehouses and large private bank platforms in Q3/Q4.” AllianceBernstein predicts that bitcoin will reach a cycle high of $200,000 in 2025, $500,000 by 2029 and $1 million by 2033. Only time will tell how realistic these forecasts are, but as the US economy continues to slow, there is more of a chance of the Fed cutting rates. This in turn, may make holding crypto related products far more attractive as both a hedging strategy and as a diversification tool.

While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.

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