The crypto market’s recent rally, driven largely by the surge of inflows into cryptocurrency exchange-traded funds (ETFs), seems to be losing momentum. As per the Kaiko Report, here’s what could be causing this shift and what it might mean for investors.
The ETF Rally Stalls
ETF inflows have been a significant driver of the crypto market’s recent rally, registering billions of dollars since their launch in early January. However, the ETF inflows and the broader Bitcoin (BTC) rally have lost some steam since April. Last week, BlackRock’s IBIT, a prominent ETF, registered its first-ever daily outflow of $37 million, breaking a streak of 71 consecutive days of inflows. Similarly, net flows across all ETFs have steadily declined since January.
Factors Contributing to the Slowdown
Several factors could be contributing to this slowdown. Firstly, the initial excitement surrounding the launch of Bitcoin ETFs might be fading as investors become more cautious. Secondly, broader market conditions, including interest rate policies and economic data, affect investor sentiment. Despite the recent slowdown, there are some reasons for optimism.
The downturn in ETF inflows seemed to reverse on Friday, with Grayscale’s GBTC and other ETFs seeing strong inflows after cooler-than-expected U.S. jobs data revived hopes of a potential rate cut from the Federal Reserve. This marked the first time that GBTC saw positive inflows, indicating a potential resurgence of investor interest.
On a global scale, competition in the ETF market is heating up. Last week, three mainland Chinese asset managers—Bosera Asset Management, Harvest Global Investments, and China Asset Management—launched Bitcoin (BTC) and Ethereum (ETH) spot ETFs in Hong Kong. Although the combined trading volume of $12.7 million on the first day was significantly lower than the $4.6 billion traded by U.S. spot ETFs on their launch day, it’s important to note that the Hong Kong ETF market is considerably smaller than its U.S. counterpart.
Interestingly, ChinaAMC’s Bitcoin ETF saw the highest volume despite its higher fee of 99 basis points. Meanwhile, ETH ETFs attracted 23% of the total first-day volume, with BTC accounting for the majority at 77%. Overall, the demand for crypto exposure in the Asia-Pacific (APAC) region seems robust.
While the momentum for spot ETF inflows may have slowed, institutional interest in real-world asset (RWA) tokenization is picking up. Last week, BlackRock’s BUIDL fund exceeded $300 million, overtaking Franklin Templeton’s BENJI as the largest U.S. Treasuries tokenized fund. This surge was driven by Ondo Finance, which plans to move $95 million into BlackRock’s fund.
Conclusion
Although the recent slowdown in ETF inflows has raised questions about whether the ETF rally is over, there are signs of resilience and potential for recovery. Institutional interest in RWAs and the rebound in ETF inflows following the U.S. jobs data suggest that the crypto market may still have room to grow. However, market conditions and investor sentiment will play a crucial role in determining the trajectory of the ETF market and the broader crypto rally.
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