For the past few trading days, some newly launched spot Bitcoin exchange-traded funds (ETFs) have had zero flows. Preliminary data from Farside Investors on April 16 showed that four of these ETFs had zero flows on that day.
Key Takeaways
- Zero Flows in Bitcoin ETFs: Recently, several newly launched spot Bitcoin exchange-traded funds (ETFs) experienced zero flows.
- Normal Market Behavior: Bloomberg ETF analyst James Seyffart emphasized that zero flows in ETFs are typical. On April 16 alone, most ETFs in the US had zero flows, indicating common market behavior.
- Creation Unit Dynamics: Seyffart clarified that ETF shares are created or destroyed in creation units, which occur only when there’s a significant supply-demand disparity.
- Market Dynamics and Outflow Trends: Market makers handle minor mismatches similarly to stock trades. However, substantial mismatches prompt market makers to tap into the underlying market, leading to significant inflows or outflows of the asset.
- Market Reaction: Despite the outflow trend, Bitcoin briefly reclaimed $64,000 during the Wednesday Asian trading session, indicating resilience in the underlying asset.
These ETFs were Bitwise (BITB), Invesco Galaxy (BTCO), WisdomTree (BTCW), and Hashdex (DEFI). Additionally, Grayscale’s GBTC and ARK 21Shares’ ARKB had outflows of $79.4 million and $12.9 million respectively.
Nevertheless, Bloomberg ETF analyst James Seyffart explained that this is perfectly normal. On April 16, Seyffart mentioned that on any given day, most ETFs will have zero flows, which is very normal.
He pointed out that out of around 3,500 ETFs in the US, 2,903 had a flow of exactly zero on April 15. Furthermore, nine out of the eleven newly launched spot Bitcoin ETFs, including Fidelity (FBTC), also had zero flows that day.
Seyffart clarified that shares are created or destroyed in creation units. This only happens when there is a significant difference in supply and demand.
Market Dynamics and Outflow Trends
A creation or redemption will only occur if there is a large enough mismatch in supply and demand, and if the cost to make a market by doing that creation or redemption is lower than simply hedging and making markets the old-fashioned way.
Market makers handle minor mismatches by trading shares like they would a stock. However, a lopsided mismatch, larger than a creation unit in either direction, prompts market makers to tap the underlying market.
When these mismatches are significant, there will be significant inflows or outflows of the underlying asset. Conversely, when mismatches are too small, there will be zero flows.
On April 16, spot Bitcoin ETFs experienced a net outflow for the third consecutive trading day, totaling $58 million. This was due to a tiny inflow of $25.8 million for BlackRock (IBIT) and outflows from GBTC and ARKB.
Bitcoin, the underlying asset, experienced a slight recovery, briefly reclaiming $64,000 during the Wednesday Asian trading session, but then slipped in the following hours.
Disclaimer
FAQ
Zero flow in a Bitcoin ETF indicates no net change in the capital entering or exiting the fund, which can be a sign of stable demand and supply or market equilibrium on that specific trading day.
According to Bloomberg ETF analyst James Seyffart, zero flows are not uncommon in the ETF market. Many ETFs, including Bitcoin ETFs, can experience days with zero flows as part of normal market behavior.
Market makers adjust by trading shares similar to stocks to handle minor supply-demand mismatches. Significant mismatches, however, might prompt them to engage with the underlying market, potentially leading to noticeable inflows or outflows.
