Bitcoin's significant drop from a peak of over $126,000 last October has negatively impacted sentiment across the cryptocurrency market. The digital asset, once considered a formidable alternative to gold for storing value and a high-risk investment expected to thrive under a crypto-friendly Trump administration, has seen its appeal wane.
Since reaching its all-time high, bitcoin has seen its value reduced by nearly half. Its inability to recover in trading has sparked fears of another prolonged downturn reminiscent of the post-FTX crash in 2022, when bitcoin plummeted from around $50,000 to $15,000. Notably, bitcoin has fallen more than 25% in the past month alone.
However, insights from crypto investment experts on CNBC's "ETF Edge" indicate that the recent activity in and out of bitcoin and crypto exchange-traded funds (ETFs) does not suggest that long-term investors are abandoning the asset class. While there is a noticeable outflow of funds, it hasn't reached a level indicative of widespread investor panic.
Over the past three months, the iShares Bitcoin Trust (IBIT) has experienced approximately $2.8 billion in net outflows. Despite this substantial shift, the ETF has attracted nearly $21 billion in net inflows over the past year, as per VettaFi data. A similar trend is evident across the broader spot bitcoin ETF sector, which, despite $5.8 billion in net outflows over the past three months, has seen net inflows of $14.2 billion over the past year. The remaining assets signal that recent withdrawals are not primarily from long-term investors or financial advisors who have begun allocating to cryptocurrency.
"It's not the ETF investors who are driving the sell-off," stated Bitwise Asset Management's CIO, Matt Hougan, on "ETF Edge." He suggests that much of the selling pressure stems from crypto investors reducing their long-standing positions. "It's really a tale of two sides," Hougan added, noting that hedge funds and short-term traders likely use liquid ETFs for quick capital withdrawal when market momentum weakens.
At the CNBC Digital Finance Forum last week, Galaxy CEO Mike Novogratz remarked that the crypto market's speculative era might be drawing to a close, with future returns aligning more with long-term investment behavior. "It's going to be real world assets with much lower returns," he shared at the event in New York City. Novogratz emphasized that retail investors typically engage with crypto seeking substantial gains, not modest annualized returns.
Despite current challenges, Wall Street financial advisors are incorporating bitcoin into investor portfolios and creating branded crypto ETFs. Long-term investors with diversified portfolios may endure the ongoing volatility, Hougan noted, adding that if widespread capitulation were occurring, recent outflows would match the scale of prior yearly inflows.
Still, current conditions prove challenging, as "It's tough to be a bitcoin investor right now," according to GraniteShares founder and CEO, Will Rhind, on "ETF Edge." He pointed out that the strong performance of other "hard" assets like gold exacerbates bitcoin's distress. For proponents of the "digital gold" concept, bitcoin's price drop amid gold's rise has been particularly troubling. "This is not supposed to happen," he commented on the unusual trend of strong-performing safe-haven assets alongside bitcoin's nearly 50% decrease. "Gold's not supposed to go to all-time highs," Rhind concluded.