The sharp decrease in Bitcoin's value from its peak of over $126,000 last October has cast a shadow over the entire cryptocurrency sector. Once hailed as a digital alternative to gold and seen as a high-risk asset poised to thrive under a favorable Trump administration, Bitcoin has lost almost half its value since this record high. This downturn has sparked fears of another 'crypto winter,' akin to the downturn during the FTX crash in 2022 when Bitcoin plummeted from nearly $50,000 to lows of $15,000. In the past month alone, Bitcoin has dropped over 25%.
According to discussions on CNBC's 'ETF Edge,' despite the recent slump, an analysis of bitcoin and crypto ETF flows indicates that long-term investors remain committed to the asset class. While there has been a movement of money out of these investments, it's not at a scale that suggests widespread investor panic.
In the past three months, the iShares Bitcoin Trust (IBIT) experienced about $2.8 billion in net outflows. Despite this, over the past year, the BlackRock ETF attracted nearly $21 billion in net inflows, as per VettaFi data. A similar trend is observed in the broader spot bitcoin ETF category, which saw approximately $5.8 billion in net outflows over the past three months but maintained a positive net inflow of $14.2 billion over the past year. The outflows appear not to originate from long-term investors or financial advisors who have committed to this asset class.
Matt Hougan, CIO of Bitwise Asset Management, commented on 'ETF Edge,' stating, 'It's not the ETF investors who are driving the sell-off.' He suggests that the selling pressure is largely from long-term crypto holders trimming their positions, distinguishing between different investor profiles in the market. Some hedge funds and short-term traders leveraging liquid ETFs may contribute to rapid capital withdrawal when momentum shifts negatively.
Last week, at CNBC’s Digital Finance Forum, Galaxy CEO Mike Novogratz suggested a shift in the crypto market from speculative eras to long-term investment strategies. He emphasized that future returns might align with more traditional investments, noting, 'It's going to be real world assets with much lower returns . . . Retail people don't get into crypto because they want to make 11% annualized . . . They want to make 30 to one, eight to one, 10 to one.'
Wall Street banks and financial advisors, among others, continue to integrate Bitcoin into diverse investor portfolios. Hougan mentioned that those with a long-term view, who hold crypto as minor portions of diversified portfolios, may weather volatility better. If investor sentiment were uniformly negative, recent outflows would match the scale of prior year inflows.
However, as Will Rhind, founder & CEO of ETF company GraniteShares, noted on 'ETF Edge,' it's undoubtedly a challenging time for new crypto investors. 'It's tough to be a bitcoin investor right now,' he stated. The solid performance of other 'hard' assets, such as gold, exacerbates the stress. For those who have embraced Bitcoin as 'digital gold,' its price fall in contrast to gold's stability and rise remains jarring. 'This is not supposed to happen,' Rhind remarked, when Bitcoin's significant drop occurs concurrently with gold reaching all-time highs.