Since July 5, 2024, Bitcoin has seen net inflows of $1.91 billion in its US spot exchange-traded funds (ETFs). However, its price has struggled to stay above $65,000. Whereas, the 24 hours volume is also dropped by 25% across the market, signaling fewer market participants.
On the other hand, traditional markets are performing well. The S&P 500 index hit an all-time high on July 16, 2024, and gold reached a historical high on July 17, 2024. This suggests Bitcoin’s underperformance isn’t due to issues in traditional finance markets.
Possible Reasons for Bitcoin’s underperformance
Investors in spot ETFs might be shifting away from spot positions, possibly for tax reasons or to use shares as collateral for traditional finance trades. Hedge funds, known for arbitrage trades, hold significant positions in these ETFs. These funds aim to profit from market inefficiencies without betting on price movements.
Hedge funds like Millennium Management, Schonfeld Strategic Advisors, Jane Street, HBK Investments, Susquehanna International, and Bracebridge Capital are not typical long-term Bitcoin holders. They might engage in trades like the cash and carry trade, where they sell Bitcoin futures while buying spot ETF positions. This means they are not betting on Bitcoin’s long-term value.
The Chicago Mercantile Exchange (CME) Bitcoin futures open interest, which measures total active contracts, stands at $10.2 billion, up 23% from the previous week. For every buyer of a futures contract, there is an equivalent short seller. Many hedge funds seek gains from the BTC futures contracts premium, currently at an annualized rate of 11%.
Funds involved in arbitrage trades will cover their futures market short positions, but the sale of the spot BTC position neutralizes the market impact. However, other institutional investors might be betting against Bitcoin’s price, which partially explains the limited impact of spot ETF inflows.
Bitcoin’s main appeal lies in its sovereignty and predictability, thanks to its hard monetary policy and independent network. This narrative is compelling when central banks struggle, either due to collapsing fiat currency purchasing power or lack of trust in the government’s ability to repay its debt.
Data that can impact Crypto market
Currently, US inflation is decreasing, and US Treasurys are strengthening, indicating investor confidence in the Federal Reserve’s strategy. The US Treasury 5-year yield fell to 4.07% on July 17 from 4.43% on July 1, showing higher demand for these assets. Investors accept lower yields because they see these assets as safe or expect lower inflation.
As confidence in the US economy grows, Bitcoin’s appeal as an independent means of exchange weakens. Positive macroeconomic data showing no signs of stress negatively impacts Bitcoin’s price, offsetting bullish sentiment from spot ETF inflows.
