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Analyzing BTC’s correction and what’s next
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This week we evaluate the claims behind the fear, uncertainty and doubt (FUD) surrounding the Grayscale Bitcoin ETF. We analyze ETF flows in aggregate, look at Bitcoin whales’ increased holdings and underreported factors potentially dragging the market.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether
- Bitcoin and Ethereum fees declined over 30% as market volatility decreased, leading to relatively less urgency amongst users transacting
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges
- Bitcoin recorded a seventh consecutive week of net inflows into CEXs, led by GBTC’s deposits, but these inflows did decrease by $100M relative to last week
- $200M worth of ETH left CEXs this week, compared to $460M in net outflows last week
GBTC Outflows FUD & Carry Trade Profits Drag Bitcoin
As Bitcoin remains in a downtrend following the launch of the spot ETFs, many are pointing to Grayscale as the potential culprit. Grayscale’s GBTC, which had been at a discount relative to its Bitcoin holdings for two years, was converted into an ETF and has seen major outflows since then.
Source: Bloomberg ETF Analysts
Analyzing the FUD — Grayscale outflows have been casting doubts over whether the launch of the Bitcoin ETFs was successful or not
- Since it’s launch, GBTC has recorded an outflow of over $4.3B
- Approximately $1B of those outflows were from FTX, which should be done selling its GBTC holdings per CoinDesk
- FTX’s bankruptcy estate had been holding GBTC at a discount and opted not to realize a loss by selling prior to the likely ETF conversion
- Many other entities, including DCG (the parent company of Genesis) that had been holding at a loss likely decided to exit GBTC once it converted to an ETF and its discount went to near-zero
- However, even despite the $4.4B in outflows from GBTC, it is worth highlighting that all the Bitcoin ETFs received in aggregate $820M+ in inflows
Therefore, it appears that there has actually been net buying activity from the Bitcoin ETFs despite its price trading lower than when these launched. Moreover, it seems that there has been additional buying from Bitcoin whales.
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Source: ITB Bitcoin Whales Perspectives
Whales Balance Reach Yearly High — The amount of Bitcoin held in addresses with over 1,000 BTC has accelerated in 2024
- “Whales” include any entity, individual or fund (including the ETFs) holding over 1,000 BTC
- While Bitcoin ETFs have seen net inflows of $820M, Bitcoin whales have seen an increase of ~$3B (76,000 BTC) so far in 2024
- Including GBTC, Bitcoin ETFs now hold 3.23% of Bitcoin’s circulating supply
- This is a higher share of supply than in gold’s case, were $110B out of a market cap of ~$10T is held in US-traded ETFs (approximately 1% of supply)
- Despite Bitcoin’s correction, the high ownership of Bitcoin ETFs suggest these have actually been getting decent traction among traditional finance investors
So if the ETFs aren’t selling, then who?
Source: ITB Bitcoin Futures Data
Carry Trade Profits — Hedge funds’ carry trade positions likely pushed the market higher in Q4 and may be leading to its decline in Q1 2024 as these are closed
- Bitcoin futures were trading at a premium (contango) of over 2% relative to spot prices just a month prior to the ETF approvals
- By going long spot and short futures, funds would execute a carry trade profiting from this difference in price netting 25% to 30% in annualized profits
- As the ETF approval window began we see that premium in futures quickly turning into a discount (led by BitMEX [green] on January 6), suggesting firms began taking profits
Other than carry trade profits, Arthur Hayes’s recent article pointed to the recent decline as a signal that the market expected the bank term funding program (BTFP) to not be renewed, which ended up becoming official on Thursday. While the BTFP allowed banks to flow liquidity into the market, by being able to borrow at par against bonds that were at steep discounts, the termination of this program may reduce some of that capital injected after the Silicon Valley Bank collapse. With Bitcoin increasingly acting as a barometer for global liquidity, this seems like a plausible argument as well.
The BTFP will now expire on March 11, but banks will have an extra year to repay their debt, suggesting the outflow on liquidity may not be as imminent. At the same time, it seems GBTC outflows are also slowing down in the last two days, and China’s central bank announced it will inject $140B into its financial system. Are these signs that Bitcoin’s correction may be close to being done, or are there other factors that could continue pushing it lower?
GBTC Outflows FUD & Carry Trade Profits Drag Bitcoin was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.