Bitcoin ETFs Maintain Inflows Despite Market Trepidation

Bitcoin ETFs have seen inflows of $340.7 million in the last day. This has been despite trepidation and fluctuation in the price of the coin. We discuss what this means in the article below.

The first week in February saw $234 million in Bitcoin ETF outflows, followed by $340.7 million in inflows the preceding day. This has mirrored the current sentiment towards the cryptocurrency. Always volatile, it is going through a period of heightened action, shooting up in price, then dropping back down. Four out of the ten spot Bitcoin ETFs recorded inflows, with the rest remaining static.

Factors to consider regarding Bitcoin’s current price changes

All of this reflected a period when the price of Bitcoin went from $92,000 to $100,000 in the space of 24 hours. At the time of writing, the Bitcoin price has settled at around $98,000. However, there are several considerations that will decide its long-term trajectory. One of these is the signaling of a trend reversal in the tightening of liquid assets in the US and further afield. Fiat liquidity is something all asset classes take a hit from, not just crypto. The world’s biggest currency, the USD, is being squeezed and the outcome will have a marked impact on cryptocurrencies.

Last month the treasury created a debt limit, which it set itself at $36 trillion. It was hoped this would signal a move in which debt was run down. However, the balance in the treasury account has gone from $623 billion to $800 billion in a month. Previously, when this has occurred, it has spurred on liquidity. People then took more risk in their investments, particularly in the crypto markets.

Sources seem to be more controlled this time, meaning this liquidity is not appearing and bucking historical trends. The results of this could be higher borrowing costs and a stagnation in economic growth. None of this is good for riskier asset classes like cryptocurrency, meaning if this occurs, it could be time to buy and hold.

Bitcoin Production Falling

Another factor that could impact the price, for better or worse, is the production of Bitcoin. Known as mining, the process consumes a lot of energy and requires large levels of resources to produce. Last year was a Bitcoin halving event, in which the reward for producing Bitcoin was lessened. This lower rate, coupled with increasing energy costs, has meant that Bitcoin production is no longer sustainable for many. The year has also seen some external factors impact Bitcoin mining. Extreme weather has been one factor cited by miners, coupled with network outages. The company MARA, one of the sector’s largest Bitcoin mining operations, reported a 12% dip in production. It created only 750 Bitcoin in January compared to 865 the year before.

Other companies, such as Riot, managed to maintain and even make a marginal increase of 2% in production. However, even the CEO of the company admitted they did this against a backdrop of increasingly difficult circumstances. Cleanspark also reported that they were hit by difficulties due to the extreme weather events taking place.

Tariffs Impacting Prices

Another factor that is creating uncertainty and creating sporadic inflows and outflows to Bitcoin ETFs is concerns over the economy and particularly trade tariffs. A bounce back did happen when proposed tariffs on Mexico and Canada saw them come to the table to discuss solutions, offsetting many fears. These deals saw tariffs delayed until a more stable solution could be put in order, which hiked the price back up.

However, tariffs with other foreign countries still exist. Many countries have decided to hit back, adding taxes of around 15% on any products coming from the United States. This fear of a trade war, amidst what looks like the start of one, is spooking the Bitcoin market. Yet again, it results in increased volatility.

What this did add to was the expectation that inflation is about to increase. This is not a good sign for cryptocurrencies, as it generally signals a move toward less risky assets. Generally, markets believe this will not be a short-term issue either, but that inflation will increase over a two-year period. Despite the Federal Reserve imposing a self-dictated lending limit and aiming for 2% inflation growth, it seems unlikely.

To gauge the market using inflows, you need to take an overview of all in- and outgoings across all the major providers. There are many different factors in play at the moment, too many to predict where Bitcoin will head in the short term. However, this does also provide the ideal circumstance for heady short-term gains. It all depends upon the trader’s level of risk. Long-term investors may wish to buy the dips, which will inevitably occur as fiscal policies and TradFi sentiment to Bitcoin are adopted over the next few months.