This week witnessed a notable shift in the momentum of two of the most successful exchange-traded fund launches in history. BlackRock’s (NYSE:BLK)spot Bitcoin ETF, IBIT, renowned for its remarkable performance, experienced zero inflows on Wednesday and Thursday, marking the end of its 71-day streak of fresh investments totaling approximately $17.24 billion in assets under management since its trading approval on January 11. Additionally, Fidelity’s FBTC, the current runner-up in the ETF race, reported losses of $22.6 million on Thursday, marking its first reported outflow and reducing its assets under management to around $9.9 billion, according to CoinGlass data.

The waning interest in the leading Bitcoin ETFs, excluding Grayscale’s GBTC, serves as a significant indicator of the cryptocurrency market’s recent cooling and suggests that the initial ETF frenzy, which propelled Bitcoin to new heights, has subsided. With Bitcoin currently trading around $63,500, down approximately 12% from its all-time high of $73,000 in March, only one of the 10 trading spot Bitcoin ETFs, Franklin Templeton’s EZBC, reported inflows on Thursday.

Disappointing inflation data has tempered hopes for Federal Reserve interest rate cuts, and the prospect of higher borrowing costs typically diminishes the market’s appetite for riskier, more volatile investments like crypto. Meanwhile, Bitcoin has remained relatively stagnant since early March, partly reflecting ETF stagnation and the anticipation surrounding the network’s recent “halving” event on April 19, as investors adhered to the “buy the rumor, sell the news” strategy, liquidating their holdings.

Nate Geraci, president of the ETF Store, noted that ETF flows often mirror the performance of the underlying asset, suggesting that a pause in Bitcoin’s price may lead to a temporary hiatus in inflows. However, Geraci emphasized that these products are still in the early stages of adoption, with many large institutions yet to permit their brokers to solicit purchases of spot Bitcoin ETFs, and registered investment advisors cautiously entering the category.

Despite the recent slowdown, these funds are widely regarded as a resounding success, accumulating over $54 billion in assets in just over three months of trading, thereby integrating Bitcoin-tracked assets into the portfolios of millions of mainstream investors.

Highlighting their success, Hong Kong’s Securities and Futures Commission recently granted approvals for three spot Bitcoin and Ether ETFs, set to commence trading on Tuesday, with additional countries expected to follow suit. Issuer Harvest is waiving a management fee for its funds, sparking expectations of a fee war akin to the heated competition in the U.S., where Grayscale introduced a Bitcoin Mini Trust with ultra-low fees of 0.15% in an effort to capture some of the outflows from GBTC, which charges 1.5%.

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Total net outflows from 11 U.S. spot bitcoin ETFs reached $120 million on Wednesday, with eight products recording zero flows, a trend deemed normal by analysts.

Grayscale’s GBTC witnessed $130.42 million exiting the converted bitcoin ETF, while Fidelity and Ark Invest’s funds were the sole recipients of inflows, totaling approximately $10 million. Among the eight funds with zero flows were BlackRock’s IBIT and Bitwise’s BITB, with IBIT ending its 71-day positive streak on Wednesday.

According to Rachael Lucas, a crypto analyst at BTC Markets, days with zero inflows are typical and do not necessarily indicate product failure. She suggests that such occurrences often align with market performance and geopolitical tensions, underscoring the complexities beyond ETF flows.

Joe Caselin, head of institutional marketing at BIT crypto exchange, echoes this sentiment, stating that zero flows in an ETF are not unusual but may signify a cooling down of ETF excitement. He emphasizes the gradual integration of fiat into the Bitcoin narrative, anticipating fresh inflows to occur intermittently as traditional finance gradually merges with crypto.

Bloomberg ETF Analyst James Seyffart previously explained that ETF shares are created or destroyed in units, a process triggered by significant disparities in supply and demand. This phenomenon explains why zero flows are commonly observed in such products.

The Block ETF data dashboard reports that the cumulative trading volume for all 11 spot Bitcoin ETFs is approaching $230 billion.

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A recent report from Fidelity Digital Assets highlights a substantial increase in the number of Bitcoin addresses holding at least $1,000 worth of Bitcoin (BTC). Fidelity’s analysts reveal that this segment soared to an unprecedented 10.6 million wallets in mid-March, marking a doubling from the 5.3 million addresses recorded in 2023.

The surge in Bitcoin addresses with smaller holdings suggests a widening distribution of the cryptocurrency and its growing adoption among the general populace, according to Fidelity’s analysts. Despite escalating prices, the data indicates that small addresses persistently accumulate and store Bitcoin, a trend Fidelity describes as positive growth.

Fidelity’s analysts offer an optimistic outlook for Bitcoin in the short term, based on various long-term data points. Out of the 16 metrics tracked, half were deemed positive, while a quarter were categorized as negative or neutral.

The report also delves into the amount of Bitcoin held on cryptocurrency exchanges, which continued its downward trajectory in the first quarter of 2024. The total amount plummeted by 4.2% to 2.3 million Bitcoin, approximately 30% lower than the peak of over 3 million Bitcoin held in 2020. However, Fidelity underscores that this decline in exchange-held Bitcoin does not necessarily imply an uptick in self-custody. Custodians like Fidelity are actively developing solutions that empower customers to retain control of their private keys while engaging in trading activities through exchanges.

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For 71 consecutive days, BlackRock Inc.’s Bitcoin fund experienced an impressive streak, accumulating nearly $18 billion in one of the most significant exchange-traded fund launches in history. However, investor interest has waned as the fervor surrounding cryptocurrencies subsided.

Data compiled by Bloomberg reveals that daily inflows into the ETF, identified by the ticker IBIT, dwindled to virtually zero on Wednesday. Throughout April, IBIT has garnered a net inflow of $1.5 billion.

IBIT’s achievement marks a notable shift in the crypto market sentiment, following the ETF-induced excitement that propelled Bitcoin to an all-time high of nearly $74,000 in March. Since then, the original cryptocurrency has declined by nearly 15%, and the much-anticipated “halving” event on April 20 failed to deliver an immediate boost.

Nevertheless, these new investment vehicles have left a significant mark on the crypto landscape. Collectively, they have attracted approximately $54 billion, introducing Bitcoin into the portfolios of potentially millions of investors. Hong Kong, positioning itself as a crypto-friendly jurisdiction, is preparing to debut its first listings of Bitcoin and Ether ETFs, with other markets likely to follow suit.

Despite the halt in net inflows, IBIT is swiftly closing the gap on Grayscale Bitcoin Trust, the current market leader. On Wednesday alone, approximately $130 million flowed out of GBTC, bringing total outflows for the year to $17 billion, according to Bloomberg data.

GBTC, identified by the ticker GBTC, imposes a management fee of 1.5%, the highest among the cohort of funds launched in early January. The launch of ETFs in Hong Kong may intensify the fee competition that has exerted pressure on GBTC.

Rebecca Sin, an ETF analyst at Bloomberg Intelligence, suggested that the launch of spot Bitcoin ETFs in Hong Kong, coupled with issuers waiving management fees, might lead to additional outflows, potentially indicating further changes in market dynamics.

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Bitcoin’s inflation rate has plummeted to a historic low of approximately 1.74% following the recent Bitcoin halving. With 93.3% of Bitcoin already mined, amounting to 19.6 million out of a possible 21 million BTC, the scarcity element is poised to escalate demand, potentially propelling the leading cryptocurrency’s price surge. In contrast, fiat currencies grapple with higher inflation rates due to governmental controls and economic policies. For instance, in 2023, countries like Argentina encountered exceptionally high inflation rates, hitting 161.0%, as per Inflation Data. The European Union reported more moderate levels, with the euro area’s annual inflation rate at 2.9% in December 2023.

The recent halving event is anticipated to further diminish Bitcoin’s inflation rate, impacting both its scarcity and investor sentiment. The trend suggests that each halving event, which halves the reward for mining new blocks, tends to bolster buyer interest due to reduced supply growth.

According to a report from CoinGecko, historical data reveals a consistent trend of significant growth in Bitcoin prices following each halving event. Following the first halving in 2012, Bitcoin’s price surged by an impressive 8,858%. Subsequent halvings witnessed diminishing returns, with increases of 294% and 540% respectively, yet the pattern of price spikes post-halving remains discernible. These events not only affect Bitcoin but also resonate across other leading cryptocurrencies, such as Ethereum, albeit with varying impacts due to differing supply mechanisms.

The completion of the fourth halving has triggered speculation within the cryptocurrency community regarding short-term market dynamics. Recently, Bitwise noted that while the month immediately following the halving typically witnesses a modest price decline, the subsequent year often heralds exponential gains. After the 2012 halving, Bitcoin experienced a meager 9% increase in the month post-halving, only to soar by a staggering 8,839% over the following year. Similar patterns were observed after the 2016 and 2020 halvings, with Bitcoin’s price witnessing significant surges in the year following each event.

Bitcoin’s market cap fluctuations around halving events provide valuable insights into consumer behavior during these critical periods. Initially pegged at $123.3 million during the first halving, the market cap swiftly surged to $947.4 million shortly thereafter. 

Similar patterns were observed in subsequent halvings, reflecting a tendency among Bitcoin holders to speculate around halving events, often opting to hold onto their assets in anticipation of value increases. The analysis of pre-and post-halving periods suggests a strong inclination toward holding Bitcoin, deemed to become more valuable as future supply constraints tighten post-halving.

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