Jan 26, 2024 - Economy

Why bitcoin has slumped since ETFs

Illustration of a frowning orange emoji glowing like the moon against the night sky.

Illustration: Shoshana Gordon/Axios

Bitcoin's fall following this month's ETF launches has much of the crypto community wondering what happened to "buy the rumor, buy the news"?!

Why it matters: These cries of disappointment show a blindspot in the industry's understanding of how Wall Street picks up new things.

  • It's only been a few days since bitcoin ETFs debuted. As of Day 14, the launch of the nine products has failed to send bitcoin prices to the moon.
  • In fact, bitcoin's price had fallen roughly 20% before turning around early Friday morning.

Yes, but: Don't blame the ETFs.

  • In aggregate, accounting for selling too, they've seen at least a billion dollars rush in.
  • "You can't make the price go down when you're buying," Matt Hougan, Bitwise Asset Management's chief investment officer and ETF expert, told Axios.

The big picture: If anything, blame the hype around ETFs for the lackluster price action in bitcoin.

  • Folks trying to front-run the launch piled in pre-approval and now appear to be unwinding those trades as expectations overestimated short-term bitcoin sales.
  • "I still think it's a 'buy the rumor, buy the news' event, but to see it you need to scale out," Hougan says.

Zoom in: Buying of the new ETF products will likely come in stages.

  • The first wave will bring the traders. The second, registered investment advisers, and the third, the brokerage platforms, Hougan adds.
  • "The long-term buyers of ETFs are financial advisers and institutions, and they don't buy on Day 1."

Between the lines: A single financial adviser sitting in Des Moines might be extremely bullish on bitcoin, but that adviser couldn't simply park his clients' dollars in the new ETFs at launch, Hougan explains.

  • First, they'd have to arrange meetings with clients, talk about whether it belongs in their portfolio and discuss how to execute positions.
  • That doesn't factor in the time it would take to do due diligence on those ETFs, discussions with compliance, Hougan says — and that's the best case in terms of timeline.
  • Most advisers work with a larger shop, which means waiting for that broker-dealer to do their due diligence, including watching how these different new ETFs trade over time, Hougan says.

The latest: Education initiatives for advisors are already underway. BlackRock, one of the ETF issuers, is set to host a webinar Friday afternoon talking "bitcoin access made easy" and "insights from early market activity."

The bottom line: "We haven't felt the real force of ETF buying," Hougan says.

  • The revolution may come yet, but if it does, it will come s l o w ly.
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