Over the last couple of days, Bitcoin’s price has plummeted by more than 10%, unsettling a cryptocurrency market that had previously enjoyed a period of relative calm. This decline has prompted investors to reconsider the influence of US spot-based Bitcoin ETFs on this downturn, with data indicating notable outflows from these investment products.
Vetle Lunde, Head of Research at K33 Research, noted on X that ETF outflows have surged to significantly high levels: “Yesterday’s net outflow of 14,579 BTC in BTC ETPs globally represents the largest net outflow recorded since the introduction of US spot ETFs. Outflows have prevailed throughout February, with 69% of trading days ending in net outflows.”
Are Bitcoin ETFs The Culprits?
These numbers highlight a consistent trend of selling pressure in the ETF market. According to Lunde, the importance lies not only in the one-day surge of outflows but also in the ongoing trend observed throughout February.
Nevertheless, some market analysts contend that the substantial outflows do not necessarily indicate a grim future. Adam (@abetrade) from Trading Riot suggests that significant ETF flows have typically preceded market corrections that later reverted to mean behavior. He pointed out that, aside from an exceptional inflow following Trump’s victory on November 7, large outflows or inflows often trigger panic selling that prepares the ground for a rebound.
Adam believes the current scenario could be an overreaction: he theorizes that as the initial selling wave diminishes, the market may stabilize or even experience a relief rally. This perspective is founded on historical instances where similar episodes did not culminate in prolonged downturns, implying that the current sentiment may soon shift toward a contrarian viewpoint.
“Aside from November 7, when large inflows followed Trump’s election win, every other significant inflow or outflow event has served as a mean-reverting signal. Typically, a major drop prompts panic selling or vice versa, which ultimately moves the market in the opposite direction,” stated Adam.
Compounding the situation are changing dynamics in the futures markets. Zaheer Ebtikar, Chief Investment Officer and founder of Split Capital, draws a connection between ETF outflows and futures pricing. Until recently, CME Futures were trading at nearly double the premium compared to traditional cryptocurrency exchanges. However, a recent adjustment has brought the futures premium down to below 5%, nearing the risk-free rate.
Ebtikar remarked on the pivotal nature of this correction. As the futures premium normalized, it appeared that market participants began to “throw in the towel” on Bitcoin ETFs, resulting in the lowest CME Futures open interest seen since the last election cycle. This decrease in open interest, combined with nearly record trading volumes on the CME, indicates a shift in sentiment where investors are displaying increasing caution about holding ETFs while still participating in futures trading.
The relationship between a declining futures premium and rising futures volume creates a complex situation. “Paradoxically, a falling futures premium leads to increased bids in futures while ETFs face sell-offs. The key indicator was that CME Futures volume reached near-record highs in the past couple of days since the election,” concluded Ebtikar.
Macro Challenges
Macroeconomic uncertainties are also weighing heavily on both crypto and traditional markets. Singapore-based QCP Capital describes the atmosphere as a “global risk-off move” impacting equities, gold, and BTC amid increasing concerns about stagflation. Consumer sentiment has weakened, as reflected in a disappointing Consumer Confidence Index of 98 (compared to the expected 103), while the US administration has recently imposed a 25% tariff on Canadian and Mexican imports—effective March 3—further dampening market attitudes.
According to QCP Capital, investors are becoming apprehensive regarding possible trade escalations and heightened inflation, creating a climate of uncertainty. The once-popular “Magnificent 7” equity trade is falling apart, and the “long crypto” position has also been flagged as one of the most overextended. In volatile markets, crypto assets are often the first to be liquidated, exacerbating negative price movements.
Looking forward, QCP Capital highlights two significant events that could influence market sentiment: NVIDIA’s earnings and the upcoming PCE data release. Results from the chip manufacturer, which has benefitted from AI-driven demand, could trigger another downturn if guidance falls short. The anticipated Personal Consumption Expenditures (PCE) data is expected to show a year-over-year increase of 2.5%, remaining above the Federal Reserve’s target of 2%. Until inflation trends lower convincingly, the Fed is likely to maintain steady rates. Markets are currently pricing in two rate cuts in 2025, with the first expected in June or July.
QCP Capital warns that market fragility persists and advises caution, as consumer and retail sentiment surveys—often leading indicators—might provide early signals of a potential stagflationary trajectory.
As of press time, BTC was trading at $87,818.
Featured image created with DALL.E, chart from TradingView.com
