Wall Street’s Crypto Engine Loses Power as ETFs Shed Millions

(Bloomberg) -- For a market that treats Bitcoin ETF flows as an indicator of demand for the underlying token, recent outflows from these funds are stoking fears that the decline in crypto prices has further to go. 

Investors yanked nearly $1 billion from ETFs tracking Bitcoin during the latest session, the second-biggest daily outflow on record for the group of 12 funds, according to data compiled by Bloomberg. BlackRock Inc.’s Bitcoin fund (ticker IBIT) suffered a $355 million exodus, followed by Grayscale’s GBTC and Fidelity’s FBTC, which shed nearly $200 million each. The cohort is also on track to post its worst weekly outflow since February.

The launch of spot-Bitcoin ETFs last year reshaped how capital moves into crypto and how traders interpret sentiment. With investors pulling nearly $4 billion from those funds in the past month and Bitcoin down some 30% since then, the ETFs are no longer just passive wrappers. Instead, they have become feedback loops: chartable, closely monitored, and central to how risk is being managed across both retail and institutional desks. 

While inflows help drive up Bitcoin’s price, the opposite is true as well. Every $1 billion that’s pulled from Bitcoin ETFs equals to a roughly 3.4% drop in the token’s price, according to an analysis by Alex Saunders at Citi Research. 

“Given long-term holders are cautious, and new investors in no rush, flows may not pick up very soon,” wrote Saunders, who had set a bear-case target of $82,000 for Bitcoin for year-end. The largest cryptocurrency is currently around $85,000 after touching a low of $80,553 earlier on Friday.

Crypto has been under pressure for more than a month, when a shock liquidation event wiped out billions of dollars in leveraged positions and led to a downward spiral in prices. At the same time, traders have been concerned about lofty AI valuations and have lacked clarity regarding the Federal Reserve’s path of interest-rate cuts. As a result, Bitcoin, a risky asset which trades 24/7, has managed to rise for just 18 sessions since Oct. 10. 

The token is lurching toward its worst monthly performance since 2022, when a string of corporate collapses rocked the wider crypto sector. Investors in the funds that offer direct access to the cryptocurrency recently found themselves sitting on collective losses after Bitcoin fell below $89,600.

Before October, investors had piled into all manner of crypto tokens and products on expectations that the Trump administration would work to continue to bring the industry into the greater financial mainstream. While institutions have accepted the sector to a greater degree than ever before, retail traders still make up a large base of investments. The retail cohort holds roughly three-quarters of spot-Bitcoin ETF assets, according to an analysis by Bernstein. 

“Too many in the industry can’t stomach another crypto cycle,” wrote Ilan Solot, senior global market strategist at Marex Solutions. “They’ve had enough, both financially and emotionally.” 

There isn’t reason to panic just yet. The recent exodus from spot-Bitcoin ETFs represents only a sliver of the $113 billion of total assets they hold. The recent declines in crypto haven’t discouraged ETF issuers from launching new funds either. Since Oct. 10, there have been 17 new crypto-linked ETFs to debut, comprising roughly 25% of all the crypto launches this year. Dozens of requests are still pending with the US Securities and Exchange Commission.

Saunders, for one, projects that demand for Bitcoin ETFs hasn’t been totally wiped out.

But over at FRNT Financial Inc. in Toronto, Stephane Ouellette has been fielding calls from clients who have increasingly voiced concerns that the October top of $125,000 may have marked the peak — at least for now. 

“It has been a serious selloff — I don’t blame people,” said Ouellette, the chief executive officer and co-founder of FRNT, which works with institutional clients.

Given this sentiment, many of the recently launched crypto ETFs are down by double digits. 

“With all of this talk about bubbles in recent months, the inability of the asset class to see any sustainable bounce recently has put some real fear into the marketplace,” said Matt Maley, chief market strategist at Miller Tabak Co. “Investors are now selling first and asking questions later.”

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