As the pioneer cryptocurrency in the world went through its ‘halving’ event, there has been a slowdown in the demand for the newest Bitcoin investment products.
After their launch in January 2024, spot bitcoin exchange-traded funds (ETFs) have become a benchmark for institutional investments in the world’s first cryptocurrency.
The background
After receiving approval from US regulators in January, the 11 spot bitcoin ETFs saw inflows of almost $13 billion in just a couple of months.
It took gold ETFs years to record such massive inflows. At their peak, spot Bitcoin ETFs had recorded daily net inflows of more than $1 billion.
This was because institutional investors had reallocated their investments to the new ETFs from the Grayscale Bitcoin Trust (GBTC).
Bitcoin halving is an event that takes place every four years and reduces block rewards for miners. This means that the amount of Bitcoin added to the market supply is reduced.
Market pundits have predicted that after the latest halving, there will be a supply shock because of the high demand for bitcoin ETFs and reduced rewards.
However, demand for Bitcoin ETFs appears to be slowing down after recording weeks of positive net inflows.
The spot Bitcoin ETFs
Many market analysts had said that they expected GBTC outflows to stop once institutions ran out of shares to sell, but ETF inflows have now turned negative.
Before the Bitcoin halving event, there had been several consecutive days of net outflows recorded by spot Bitcoin ETFs that ranged in hundreds of millions of dollars.
But, even though there is a downturn, Bitfinex’ head of derivatives, Jag Kooner, said that ETF demand would likely catch up after the halving.
He stated that the decline in inflows and rise in outflows was not related to halving, but rather due to geopolitical tensions and the current Nasdaq and SPX decline.
He added that Bitcoin ETFs are only a small part of traditional finance portfolios and are considered ‘alternate investments’.
Therefore, it is likely that people are just reducing their exposure to risky assets and rebalancing their portfolios.
Supply issues
A post-halving supply shock has been predicted due to the high inflows recorded in Bitcoin ETFs, as they were 3 to 10 times the daily mining supply of BTC in the first three months.
According to a report from Bybit, BTC reserves on exchanges are expected to finish within nine months of the halving event, while some analysts believe it will happen within six months.
Data from CryptoQuant showed that centralized exchanges saw their Bitcoin supply decline to a three-year low by April 16 to 1.94 million BTC.
This has further confirmed that there is likely going to be a supply shock after the halving because rewards are now reduced to 3.125 BTC from 6.25 BTC.
ETFs saw their demand stagnate by the end of March and by the third week of April, the demand has slowed enough to lead to net daily outflows.
The market decline shows that currently, demand does not outstrip the supply of Bitcoin on an absolute basis.