Bitcoin is experiencing a rough patch recently.
After reaching an all-time high of approximately $126,000 in early October, Bitcoin’s value has dipped below $90,000, marking a 20% decline over the past month. This downturn has significantly affected exchange-traded funds (ETFs) that track the cryptocurrency. Investors withdrew $523 million from BlackRock’s iShares Bitcoin Trust ETF (IBIT) in just one day last week, representing the largest single-day outflow in the fund’s history, according to Bloomberg. Additionally, Morgan Stanley sold off $104 million in intricate structured notes linked to the ETF.
So, what’s the cause of this volatility? The main reason appears to be that investors are reducing their exposure to higher-risk assets, explained Bryan Armour, who heads ETF and passive strategies research at Morningstar. “Cryptocurrency is inherently speculative, and investors tend to exit when they see a specific trigger,” he noted. The influx of new crypto ETFs could indicate a strategic exit point for those looking to cash in following rising mainstream acceptance, he added.
Not So Itty-Bitty
However, the current fluctuations do not necessarily imply that investors are universally pessimistic. Despite the outflows and a year-to-date decline of about 13%, IBIT still boasts an impressive $70 billion in net assets. The fund attracted $4.3 billion in October alone, as per data from Morningstar Direct. The only month of outflows for this year occurred in February, during which it lost around $150 million.
On the other hand, some significant investors are increasing their stakes. Harvard University’s endowment has recently increased its investment in IBIT threefold, making it the institution’s largest public holding. JPMorgan Chase also revealed it owned 5.28 million shares of IBIT at the end of September, a 64% rise since June, representing a notable change for a bank whose CEO, Jamie Dimon, once referred to Bitcoin as a “pet rock.”
Conversely, other Bitcoin ETFs have faced tougher times:
- The Grayscale Bitcoin Trust ETF (GBTC) experienced a loss of approximately $540 million last month and has reported outflows every month this year, according to Morningstar.
- The Ark 21Shares Bitcoin ETF (ARKB) saw about $240 million in losses in October.
- The CoinShares Bitcoin ETF (BRRR) recorded around $5 million in outflows.
It’s crucial to have a pre-established plan ahead of events like this selloff, as acting out of panic can lead to poor decisions, cautioned Armour. “Identify in advance the points at which you would sell to secure profits and minimize losses, so that emotions don’t dictate your actions,” he advised.