The recent launch of spot Bitcoin Exchange-Traded Funds (ETFs) by industry giants BlackRock and Fidelity has been hailed as a landmark moment in the cryptocurrency world. These ETFs quickly became among the top five ETF launches in their initial month, attracting significant attention and inflows from investors. However, despite this impressive milestone, the price response of Bitcoin (BTC) has been notably subdued. Prior to the launch of the ETFs, BTC reached a peak of $49,040 on January 11. Today, the price hovers around $51,000, representing a modest appreciation of only 4.3%. This lukewarm performance has left many market observers scratching their heads in confusion.
One possible explanation for the lackluster price action of Bitcoin following the ETF launches comes from CryptoQuant CEO Ki Young Ju. Ju’s analysis reveals a significant transfer of over 700,000 BTC to Over-The-Counter (OTC) desks, predominantly utilized by miners, in the weeks following the approval of spot Bitcoin ETFs. This transfer amounts to approximately $35.6 billion at current prices and has raised questions about its impact on the market dynamics of Bitcoin. OTC desks facilitate direct transactions between parties, allowing for the buying and selling of large volumes of BTC without immediately influencing the market price. This method of trading contrasts with public exchanges, where order matching among multiple participants can lead to price volatility.
By choosing OTC transactions, large buyers such as ETF issuers can accumulate significant amounts of Bitcoin without causing abrupt price fluctuations. Ju’s analysis suggests that the issuers behind the newly launched Bitcoin ETFs are strategically purchasing Bitcoin through OTC desks to meet the demand from ETF investors while avoiding the immediate price impact that would arise from large-scale purchases on open exchanges. If the 700,000 BTC had been bought on the spot market instead of through OTC channels, the resulting influx of demand would likely have driven Bitcoin’s price much higher than the observed 4.3% increase.
Looking ahead, questions arise about the sustainability of this strategy. What if miners can only sell half of the current supply following the upcoming BTC halving in April, while the demand remains constant? The finite nature of the OTC supply suggests that a supply shock could occur once these reserves are depleted. When entities like BlackRock are forced to purchase Bitcoin on the open market to support their ETFs, the price of BTC could react swiftly to the increased demand. As of now, Bitcoin is trading at $51,030, with the potential for further price fluctuations in the future.
While the launch of Bitcoin ETFs has been a significant development for the cryptocurrency market, the subdued price response of BTC raises important questions about the underlying dynamics at play. The strategic use of OTC transactions by ETF issuers and other large buyers highlights the complexity of managing demand and price stability in the cryptocurrency space. As investors navigate these uncertain waters, conducting thorough research and assessing risks are crucial steps in making informed investment decisions.