Bitcoin ETFs with negative record

The Bitcoin price recorded its worst month since November 2022 in April and continued its sell-off to below USD 57,000 on the first trading day of May. Yesterday was accompanied by an absolute negative record for the Bitcoin spot ETFs approved in the US in January: for the first time, none of the eleven investment products received funds and with a net outflow of USD 563 million, it was by far the worst day for Bitcoin ETFs.

However, it looks like ETF inflows could soon pick up again. According to BlackRock, it is in the process of educating large institutional investors about Bitcoin and its own investment product.

Many of these interested firms - whether they are pension funds, endowments, sovereign wealth funds, insurance companies, other asset managers or family offices - are engaged in ongoing review and research discussions, and we are playing a role from an education perspective.
_{Robert Mitchnick, Head of Digital Assets at BlackRock}

According to Mitchnick, the current lull is likely to be followed by a new wave of inflows from other investor groups. The head of digital assets at BlackRock also revealed that the world's largest asset manager has been having these kinds of conversations around Bitcoin in the background for several years.

Further buying demand could also soon come to Bitcoin ETFs through Morgan Stanley's financial services. The major bank is actively seeking to invest in the new Bitcoin ETFs with twelve of its in-house funds. A few days ago, Morgan Stanley submitted a new application to the US supervisory authority SEC.

And the fact that some funds are flowing out again after the brilliant start of ETFs is no cause for concern. This is perfectly normal in the ETF world. Nate Geraci, co-founder of the ETF Institute, emphasized this once again. Bloomberg ETF expert James Seyffart agreed with this opinion with a retweet.

Nevertheless, it is interesting to note that ETF investors seem to hit the sell button especially when the Bitcoin price falls. A widespread assumption before the investment products were approved was that they would reduce the fluctuations - at least the downward ones. Now, however, it looks more like Wall Street is trading Bitcoin pro-cyclically.

The current correction of over 20% is generally more than normal for Bitcoin. Even in bull markets, it is common for Bitcoin to collapse by almost a third several times. For example, at the beginning of 2021, when the price fell from around 42,000 to 29,000 within a few days, only to more than double afterwards.

Concerns about higher inflation in the US, which would probably not give the Federal Reserve any room for the planned interest rate cuts, are weighing on the market. For this reason, the traditional markets are also currently under pressure alongside Bitcoin. At 3.5%, US inflation is well above the advertised 2% target. Wage inflation for the first quarter was also reported this week, which was higher than expected. Accordingly, there are currently no real signs of improvement on the inflation front.

Yesterday evening, the US Federal Reserve met and the monetary authorities announced that they would keep the key interest rate in the range of 5.25 to 5.50 percent. Although the market anticipated this in advance, Federal Reserve Chairman Jerome Powell announced during the Q&A session that interest rate hikes were extremely unlikely. The Federal Reserve also announced that it would be curbing its balance sheet reduction from June, which will make the monetary policy environment a little looser in the foreseeable future. Since September 2022, the Federal Reserve has been reducing its balance sheet by over USD 60 billion per month. In future, it will only be USD 25 billion.

Both the stock market and the Bitcoin price briefly breathed a sigh of relief after the rather positively received central bank meeting, but then gave up most of their gains. The market is currently assuming one to two interest rate cuts this year - a few months ago it was significantly more than that.

Another negative factor also hanging over the markets is the slowing US economy. In the first quarter, gross domestic product in the USA only grew by 1.6% - experts were expecting 2.4%. In addition, market participants are generally disappointed with the outlook announced by companies during the reporting season.

The risk of a so-called hard landing in the USA, i.e. ultimately a recession, appears to be increasingly priced in. It will be interesting to see how the interplay between monetary policy, inflation and economic performance continues to develop. Bitcoin is not entirely exempt from movements on the traditional financial market, let alone monetary policy.

It remains to be seen whether Bitcoin ETFs will see a renewed inflow of funds when the market situation improves - as was the case in February and the first half of March.