Why Bitcoin ETFs with ‘zero flows’ don’t mean what you think

According to Bloomberg ETF expert James Seyffart, it’s common for Bitcoin (BTC) exchange-traded funds (ETFs) to experience zero inflows over certain days and this shouldn’t be taken as a sign of the products underperforming or failing.

The majority of US ETFs (exchange-traded funds) typically record no new investments on regular days, according to Seyffart’s statement in an April 16 blog post. This is a common occurrence for ETFs within any specific sector.

“On any given day, the vast majority of ETFs will have a flow number of ZERO — this is very normal. There are ~3,500 ETFs in the U.S. Yesterday 2,903 of them had a flow of exactly zero.”

Why Bitcoin ETFs with ‘zero flows’ don’t mean what you think

A number of market analysts expressed apprehension over the small investments in U.S. Bitcoin Exchange-Traded Funds (ETFs) recently. Notably, BlackRock’s Bitcoin ETF was the exception, attracting inflows for two consecutive days during the period from April 12 to April 15.

Why Bitcoin ETFs with ‘zero flows’ don’t mean what you think

According to Seyffart, these flows posed no need for worry and were common for many ETFs because of the way newly incoming funds get logged in.

In simple terms, for an Exchange-Traded Fund (ETF) to receive new investments or lose existing ones, there must be a noticeable discrepancy between the amount investors want to buy or sell and the current supply of ETF shares. This difference triggers the creation or redemption of new units called “creation units.” (Seyffart’s explanation paraphrased)

“Seyffart explained that this phenomenon occurs exclusively when there is a significant discrepancy between supply and demand. The disparity must be substantial enough to warrant intervention in the market, and it should be more pronounced than what a single creation unit can address.”

Creation units are the “lots” in which ETF shares are created and redeemed.

“Each ETF may have varying numbers of creation units, with Bitcoin spot ETFs having units that consist of between 5,000 and 50,000 shares,” he explained.

Over the past six trading days, ten U.S.-listed Bitcoin products have experienced a total withdrawal of funds, with approximately four of these days showing net outflows. The Grayscale Bitcoin Trust (GBTC) has been the primary source of this selling, as inflows into newly created funds have not kept pace.

On April 16, according to initial data from Farside Investors, GBTC recorded net withdrawals of approximately $79.4 million, while ARKB, the ARK 21Shares Bitcoin ETF, experienced outflows amounting to around $12.9 million.

On the fourteen and fifteenth of April, a total of $91.8 million was withdrawn from all ETFs in the aggregate.

Why Bitcoin ETFs with ‘zero flows’ don’t mean what you think

In simpler terms, Bitcoin ETF investments have been decreasing lately, possibly due to Bitcoin’s weak performance over the past few days. The price of Bitcoin has dropped by 7.8% this week, reaching $63,723 according to TradingView.

Market analysts and traders attribute the recent market turbulence in the financial world to two main factors: the increasing political conflicts in the Middle East, and the approaching Bitcoin halving due on April 20.

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2024-04-17 04:31