Near the BTC halving, interest in Bitcoin ETFs begins to decline. Demand for the newest Bitcoin investment products is slowing down as the world’s first cryptocurrency went through its fourth “halving” event. Spot Bitcoin exchange-traded funds (ETFs) became a benchmark for institutional investments in Bitcoin BTC $66,297 after launching in January 2024.
The 11 spot Bitcoin ETFs approved by United States regulators in January collectively managed over $13 billion in inflows within a few months of launching. Gold ETFs took years to accomplish the same feat. At their peak, spot BTC ETFs saw up to $1 billion in daily net inflows — the result of institutional investors reallocating investments from the Grayscale Bitcoin Trust (GBTC) to the new ETFs.
The Bitcoin halving is considered an essential event in the Bitcoin timeline, which occurs roughly every four years and reduces the block reward for miners by half. Thus, the amount of new BTC added to the market daily is reduced by half. The halving has now reduced the block reward from 6.25 BTC to 3.125 BTC. Reduced rewards and high demand for BTC via ETFs led many market pundits to predict a supply shock after the April 20 halving. However, after weeks of consecutive net positive inflows to Bitcoin ETFs, demand for the products appears to be slowing down.
Are geopolitics to blame for BTC ETF outflows?
While many market observers projected that GBTC outflows would eventually dry up as institutions ran out of GBTC shares to sell, inflows to ETFs have now turned negative. Ahead of the Bitcoin halving, spot BTC ETFs witnessed multiple straight days of net outflows ranging in the hundreds of millions of dollars. However, despite the present dip, Jag Kooner, head of derivatives at Bitfinex, believes the demand for ETF will pick up after the halving.
“The reduction in inflows and significant outflows is not correlated to the halving event. But rather to the recent SPX and Nasdaq fall and global tensions. Bitcoin ETFs are an ‘alternate investment’ or a tiny element of massive TradFi [conventional finance] investment portfolios. The current situation is likely a function of rebalancing risk on those portfolios and reducing exposure to high-risk assets,” he said.
Kooner stated that BTC’s remarkable increase since January 2024 was thanks not only to ETF approvals but also to market participants speculating on the impact of spot ETFs on the Bitcoin price. Thus, “we expect a stabilization of flows to result in a return of speculation on a bullish tipping of flows. While we return to bullish trending market conditions.”
Bitcoin supply shock theory takes a backseat.
The first three months of spot BTC ETF inflows were 3-10 times the daily mining supply of 900 BTC. Many market observers predicted a post-halving supply shock due to significant ETF demand and institutional purchases from MicroStrategy. The Bybit research estimated that BTC reserves on exchanges might deplete within nine months of the halving. At the same time, other analysts expected a six-month timeframe. CryptoQuant said that the supply of centralized exchange BTC dropped to 1.94 million BTC on April 16, a three-year low.
According to CryptoQuant CEO Ki Young Ju, BTC may experience a supply shock within six months of the halving. By the third week of April, ETF demand had reduced to net daily outflows. ETF demand stalled in late March as BTC suffered its first week of net withdrawals.
According to Young, ETF demand may increase if the BTC price reaches crucial support levels when new whale purchasers have a $56,000 on-chain cost base. The cost basis of an investment is the initial investment plus any commissions or fees.
Interest in BTC options has grown while ETF demand has stalled, indicating that volatility-focused investors are replacing buy-and-hold investors. Josef Tětek, Bitcoin ambassador at Trezor, clarified to Cointelegraph that ETFs may not indicate institutional demand.
U.S. regulations allow institutions and ordinary investors to buy ETFs. The post-halving supply shock idea persisted for most of February and March due to spot ETF inflows despite GBTC outflows and fresh BTC price highs. ETF flows became passive days before the halving. The BTC price fell roughly 10% from all-time highs. They are forcing many to question their supply shock theory in the short term. Some experts expect the demand for BTC ETF to rise following the halving as market circumstances improve.