Bitcoin ETF Demand Sours Amid BTC Halving

The demand for the newest Bitcoin investment products is slowing down following the fourth halving event of the cryptocurrency. Spot Bitcoin exchange-traded funds (ETFs), which are considered a benchmark for institutional Bitcoin investments, have seen a decrease in demand. In January 2024, 11 spot Bitcoin ETFs were approved by US regulators and collectively managed over $13 billion in inflows within a few months of launching. At their peak, these ETFs saw up to $1 billion in daily net inflows. The halving event has caused reduced rewards for miners and coupled with the high demand for BTC through ETFs, which has led to a supply shock in the market.

Geopolitical tensions and decline in traditional finance investment portfolios are believed to be responsible for the recent outflows from Bitcoin ETFs. While many expected a decrease in outflows from the Grayscale Bitcoin Trust (GBTC) as institutions ran out of GBTC shares to sell, the outflows to ETFs have now turned negative. Some market analysts believe that these outflows are not correlated to the halving event but are caused by current global events. They predict that the demand for ETFs will catch up after the halving event as market conditions stabilize.

The supply shock theory, which suggested that BTC reserves on exchanges could dry up within six to nine months of the halving, has taken a backseat as the demand for ETFs has slowed down. By the third week of April, ETF demand has seen consecutive net daily outflows. Some experts believe that the demand for ETFs may rebound if the BTC price approaches critical support levels. They also point out that ETFs do not necessarily indicate institutional demand as they are available to both institutions and retail investors.

While ETF demand has slowed down, the open interest in BTC options has increased. This suggests that buy-and-hold investors are waiting on the sidelines while volatility-focused investors are taking their place. There is rising demand for Bitcoin in countries across the globe as fiat currencies fail as a reliable store of value. The supply shock theory may not hold true in the short term as ETF flows turned passive just days before the halving and the BTC price slid nearly 10% from all-time highs.

Despite the current slowdown in demand for BTC ETFs, some experts remain optimistic that the demand will reach new highs as market conditions improve after the halving event. It is difficult to speculate on the impact and relative influence of various demand drivers in the short term, but the long-term view suggests rising global demand for Bitcoin.