Although investors pulled significant amounts from cryptocurrency ETFs in early September as part of a wider retreat from riskier assets, we have seen a reversal in fortune in mid September on rising expectations for a 50 basis point initial interest rate cut from the US Federal Reserve which would in turn, make risk assets such as cryptocurrencies and cryptocurrency ETFs more attractive. ETF trading volumes remained flat at $8 billion last week, significantly lower than the yearly average of $14.2 billion. Spot Bitcoin ETF’s experienced investors pulling cash from these funds for eight straight days, from 27th August to 6th September, with consecutive daily net outflows, totaling nearly $1.2 billion. However, since that point, they have produced $603.5 million worth of positive flows since and have generated nearly $17.5 billion in total net inflows since trading began in January, according to data compiled by The Block. Although EXANTE’s Professional and Institutional clients were also affected by these global outflows, they more than held firm in their belief in the asset. They not only continued to hold the asset, but increased their Spot Bitcoin ETFs holdings from 48.7% on 18th August to 49% by 15th September.
This week we have seen a turnaround for Spot Bitcoin ETFs as Bitcoin is up over 5% this week. Of the 11 Spot Bitcoin ETFs available, 7 have seen positive inflows, totaling $186.76 million over the past four days according to data from SoSoValue. BlackRock’s IBIT ETF generated positive flows for the first time in three weeks on Monday but returned to zero flows yesterday as Fidelity’s FBTC experienced the highest level of positive flows, bringing in $56.6 million, according to data from CoinGlass. The change in Bitcoin valuation in early September when the entire financial markets universe appeared to be reacting poorly to US jobs data with the consequent impact on Spot Bitcoin ETFs is reflected in the holdings of EXANTE’s Professional and Institutional clients as well. Despite losing more of their value in early September than was lost globally, EXANTE’s Professional and Institutional clients knew that this was merely a passing blip as they more than benefitted from those same holdings as the value of these has continued to rise at a faster pace as the Fed cut and overall macroeconomic situation supported a more risk on approach.
However, Ethereum ETFs have not seen the same positive flows as Ethereum continues to struggle and is down over 1% over the past seven days. According to SoSoValue data, Ethereum ETFs saw net outflows of $15.11 million yesterday. In fact, since launching, Grayscale’s, ETHE has seen just four days of neutral flows and not one day of net inflows. As noted by ccn.com,Grayscale’s lower-fee “mini fund” gambit isn’t paying off. As noted by Cointelegraph, Bitstamp CEO for the Americas and global commercial chief Bobby Zagotta said Spot Ether exchange-traded funds would have fared better if they had launched alongside Bitcoin ETFs in January. EXANTE’s Institutional Investor and Professional clients however, are still optimistic about this asset and have continued to increase both their overall holdings of Ethereum ETFS in their ownership of ETH-linked products and the number of these positions they hold.
Will the recovery continue for cryptocurrency ETFs?
It appears that the correlation between market sentiment around interest rates has been the most influencing factor for cryptocurrency ETFs. Therefore, as the US Federal Reserve looks set to cut interest rates for the first time in four years today, the question for investors remains if we should expect to see a further appreciation of the cryptocurrencies behind these ETFS and hence increasing demand for these ETF assets or if markets will focus on expanding within equities to more interest rate sensitive sectors. Given that banking giant State Street Bank announced last week that they were launching three crypto/crypto-adjacent ETFs with Galaxy Asset Management, it is highly likely that there will be more, not less, interest in these crypto products in the months ahead. Bitcoin ETFs now command $54.84 billion in net assets or 4.62% of Bitcoin’s market cap while Ethereum ETFs hold $6.41 billion in net assets or 2.27% of Ethereum’s market cap. If the US Fed has indeed been able to engineer a soft landing then we may see the proportion of Bitcoin ETF and Ethereum ETF net assets grow as interest rates continue to decline and investors seek out other sources of income.
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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