Bitcoin Slumps After ETF Rollout

The industry clamored for clearance to offer spot ETFs. Now that they’re here, the results are less than stellar.

Photo of Bitcoin
Photo by André François McKenzie via Unsplash

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The debut of the much-anticipated Bitcoin ETFs isn’t exactly sending the cryptocurrency to the moon.

Instead of “HODL’ing” — that’s message-board speak for “hold on for dear life,” or refusing to ever sell — many bitcoin owners are using the opportunity to offload the digital currency, sending its price plummeting and spoiling the launches of various ETFs from major financial institutions.

Hold on to Your Bits

The so-called spot-bitcoin ETFs — which essentially allow an investor to trade bitcoin as easily as stocks or mutual funds — have long been heralded by crypto proponents as proof of the currency’s mainstream legitimacy. And when the SEC finally approved the ETFs earlier this month, nearly a dozen asset managers including BlackRock, Fidelity, and ARK stood ready to launch their own funds.

But the fun fizzled quickly, retroactively making last year’s bitcoin rally of roughly 160% look less like a sign of what’s to come and more like a big buildup ahead of a selloff:

  • The price of bitcoin has receded roughly 16% since the funds launched on January 11, falling under $40,000 for the first time since early December (bitcoin mania initially sent the price to nearly $70,000 in November 2021).
  • Inflows into the ETFs, meanwhile, have totaled roughly $4.7 billion by the end of Tuesday, according to crypto investment group CoinShares, slightly lower than what some analysts had expected.

The Gray Zone: This being crypto, there’s already a leading theory as to why the ETFs failed to pop. Since 2017, Grayscale, a crypto-focused asset manager, has been operating its Grayscale Bitcoin Trust, which allows users to swap bitcoin for shares in the trust, which roughly tracks with the price of the digital currency itself. Grayscale led the lobbying charge to legalize spot-bitcoin ETFs, and moved the trust, which held roughly $28 billion in assets, into an ETF following the SEC’s approval earlier this month. But investors seized the opportunity to finally cash out, with some simply taking their money over to new rival ETFs that offered far lower exchange fees. Grayscale just slashed its fee to 1.5% from 2%, but Blackrock and Fidelity launched their ETFs with zero-fee promotions. In roughly two weeks, $3.7 billion has left Grayscale’s fund. That’s less HODL and more HTI – here, take it!