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Analysts' Insights

Are Institutional Bitcoin ETF Investors Coming? - by Markus Thielen

We warned that Bitcoin was at risk of returning to its nearest support level, situated at the $36,000/$38,000 area. The exuberant positioning bubble was at risk of being popped at any moment. Our report pointed this out and suggested hedging portfolios when Bitcoin traded at $44,300, and we expected prices to decline.

Previously, when Bitcoin-related products were listed on US financial markets, we had seen a sharp rally, followed by a significant sell-off. This was the case when Bitcoin Futures were listed in December 2017, Coinbase shares were listed in April 2021, and Bitcoin ETFs based on Futures were listed in October 2021.

Ideally, we would like to see Bitcoin declining into the $36,739 support level from which we expect prices to rebound as the overall liquidity and macro environment is still supportive. Instead of explaining the current sell-off on exuberant positioning and profit-taking, the industry blames the decline on Grayscale. Their GBTC product sees large outflows after only lowering the annual management fee structure to 1.5% from 2.0%.

But instead of moving that Bitcoin exposure into another ETF 1:1, we expect that many early investors will use these elevated prices to take profit, and once the new inflow momentum runs out, Bitcoin prices could be even lower. While every well-publicized launch would attract significant media and investor attention, BlackRock’s iShares Bitcoin Trust has just recorded a -50% volume decline from its first trading day. This should slow investor interest, and we should monitor this number very carefully as it could indicate that TradeFi interest is not as strong – at this point – as initially expected.

Shares of MicroStrategy, which have been a Bitcoin ETF proxy due to their significant Bitcoin holdings relative to their non-Bitcoin operational business, have declined by -32% since the end of December. This decline indicates that TradeFi demand might not be as robust as expected.

Only 39% of financial professionals expected the SEC to approve a Bitcoin Spot ETF in 2024. To ‘Matrix on Target,’ it appears that those advisors were not ready, and the education and operational gap is putting any allocations from clients of those advisors into a temporary vacuum that could result in Bitcoin gradually declining into our support zone from which the next leg higher occurs.

Written by Markus Thielen, Head of Research & Strategy at Matrixport. Author of Crypto Titans.

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Industry views and information shared do not represent Matrixport's position and do not constitute any investment advice.

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