Bitcoin ETFs Herald Less Febrile Token Longer Term, Traders Say
(Bloomberg) -- Bitcoin started the week nursing a slump that stoked fears of outflows from dedicated US exchange-traded funds. Instead dip buyers poured in cash, a pattern that for some points to a less volatile token longer term.
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A net $737.5 million was added to the 11 ETFs in the four days to Thursday, steadying Bitcoin near $58,000 after a drop to $53,602 on July 5 amid sales of seized tokens and fears of disposals by creditors of the failed Mt. Gox exchange.
Market participants argue the ETFs from titans including BlackRock Inc. and Fidelity Investments offer the type of bedrock demand that can temper price swings. The six-month-old portfolios have amassed about $51 billion in assets — more than 4% of Bitcoin supply — and feature hedge funds and wealth advisers as top holders. Such specialist institutions are a contrast to the individual investors lured to crypto in earlier years as a get-rich-quick trade.
“The increasing institutionalization of Bitcoin ownership will, over time, lead to decreasing volatility,” said Richard Galvin, co-founder of hedge fund DACM. Products like ETFs introduce a category of investor that is “more likely to undertake counter-cyclical buying,” he added.
Declining Trend
Gauges of Bitcoin swings have already trended lower in the past decade, though they remain higher than for assets such as stocks or gold. For example, the gap between 180-day measures of realized volatility for the token and the yellow metal has narrowed by over 100 percentage points during the period to 28 percentage points.
“Whenever the gold price falls, there are many value buyers such as bullion dealers, jewelers and central banks, who buy the dip enthusiastically,” said Charlie Morris, chief investment officer at ByteTree Asset Management. “These value buyers naturally help to quash volatility. With early institutional adoption, Bitcoin has seen growth in value buyers.”
The token still periodically traverses wide price spans during a trading day — so-called range-based realized volatility — and that may spur a perception of Bitcoin as considerably more skittish overall than other assets, according to a study posted on the CFA Institute’s Enterprising Investor forum.
“We’re a long way from Bitcoin’s volatility dropping to a level where it loses its appeal to traders,” said Caroline Mauron, co-founder of digital-asset derivatives liquidity provider Orbit Markets. “Its volatility is still higher than almost any traditional asset.”
Smaller Tokens
Speculators craving intense price swings also have a plethora of other digital coins to choose from, ranging from tokens such as Solana to meme-crowd favorite Dogecoin. Bitcoin comprises 50% of the $2.2 trillion crypto market, down from 90% a decade ago, reflecting the rise of smaller cryptoassets, CoinGecko data show.
Bitcoin hit a record of $73,798 in March, aided by the US ETFs, before falling back. Other effects of the ETFs include improved market liquidity and more clustering of trading around US market hours, research firm Kaiko said. Bitcoin funds listed in Hong Kong and Australia after the US offerings went live.
Le Shi, head of trading at market making firm Auros, argued that an expanding deck of Bitcoin ETFs creates a “natural upward pressure” on the token’s price. “As the asset class grows larger and the price rises, volatility tends to decrease because it becomes harder to significantly move the price,” Shi said.
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