The dramatic decline of Bitcoin from its record high of over $126,000 last October has led to widespread unease across the cryptocurrency sector. Confidence in Bitcoin as both a digital equivalent to gold and a potential high-performing asset under a crypto-friendly Trump administration has been significantly undermined.
Bitcoin has lost nearly half its value since last October, and its failure to recover is fueling concerns about the onset of another 'crypto winter', akin to the 2022 FTX crash when prices plummeted from nearly $50,000 to as low as $15,000. Over the past month alone, Bitcoin's value has decreased by more than 25%.
Despite these troubling signs, experts featured on the latest CNBC 'ETF Edge' are highlighting data from Bitcoin and crypto exchange-traded funds, which show that long-term investors are not fleeing the sector. Though there have been outflows, they are not at levels indicative of a wider panic among long-term investors.
In the last three months, the iShares Bitcoin Trust (IBIT) has experienced $2.8 billion in net outflows. While significant, the ETF still attracted nearly $21 billion in net inflows over the past year, as reported by VettaFi. This pattern holds true across the broader category of spot Bitcoin ETFs, with a $5.8 billion outflow over three months but a positive $14.2 billion inflow over the past year. Most of the assets remain, with the removed funds thought not to originate from long-term investors or financial advisors investing in Bitcoin.
'It's not the ETF investors who are driving the sell-off,' commented Matt Hougan, CIO of Bitwise Asset Management on 'ETF Edge.'
He suggests that much of the pressure on Bitcoin is due to crypto investors who have been accumulating holdings over many years choosing to reduce their exposure. Hougan explained, 'It's really a tale of two sides,' also noting the rapid capital movements by hedge funds and short-term traders using liquid ETFs as strategic tools.
At CNBC's Digital Finance Forum last week, Galaxy CEO Mike Novogratz claimed that the era of speculative growth in the crypto market might be waning, pointing towards returns mimicking traditional long-term investments. 'It's going to be real world assets with much lower returns,' he stated at the New York City event, indicating that the excitement of prior high returns may not align with future expectations.
Financial advisors within Wall Street banks are increasingly incorporating Bitcoin into client portfolios and developing branded crypto ETFs. Long-term investors, who include crypto as part of diversified holdings, may tolerate periods of volatility, as pointed out by Hougan. Comprehensive investor sell-offs would have led to outflows matching the scale of the last 12 months' inflows if true capitulation was occurring.
Despite this positive spin from ETF analysis, recent investors still face challenging conditions. Will Rhind, founder & CEO of ETF company GraniteShares, acknowledged on 'ETF Edge', 'It's tough to be a bitcoin investor right now,' noting that the strong performance of other 'hard' assets like gold has heightened Bitcoin's distress. The precipitous decline has alarmed those who bought into the idea of Bitcoin as 'digital gold.' Rhind lamented, 'This is not supposed to happen,' especially at a time when other safe haven investments, such as gold, reach new heights while Bitcoin drops by almost 50%.