Bitcoin is down 16 percent from its high of last week. Investors have stopped investing in new funds, which had been driving a big rally for this year.
The largest cryptocurrency in the world, which was worth $73,800 on Thursday, fell to $60,760 Wednesday, before rising back up to just over $63,000.
According to CoinShares’ asset management group, the decline in bitcoin is due to the fact that outflows of the 11 new exchange traded funds have reached nearly $500mn over the past two days. Grayscale, the biggest bitcoin ETF, saw its largest outflow this week, with more than $1bn being withdrawn.
Bitcoin has surged to new highs after US regulators finally approved spot bitcoin ETFs last January, following a decade-long rejection. BlackRock’s Bitcoin ETF is the fastest-ever ETF to reach $10bn.
Laith Khalaf, London-based head of investment analyses at AJ Bell, said: “The fact that there are regulated entities offering investment options in bitcoin gives investors confidence but doesn’t change the fundamental nature bitcoin itself.”
He added that bitcoin is more susceptible to price swings than other assets because it lacks any fundamentals. “There’s nothing that you can use to base a valuation on.”
Since January, the money flowing into new ETFs has been moderated by the consistent outflows from Grayscale. The company has seen withdrawals totaling more than 12bn dollars since the Securities and Exchange Commission allowed it to convert its Bitcoin trust into an ETF.
Bloomberg data from Wednesday revealed a $444mn increase in outflows. Grayscale’s ETF fees are 1.5 percent, compared to competitors such as BlackRock Fidelity Ark Investment Bitwise who have reduced or temporarily waived their fees in order to attract new clients.
BlackRock had the highest inflows this week, $527mn, but other ETFs such as Invesco Franklin Templeton, and Valkyrie had only minimal inflows.
Joel Kruger is a market strategist for LMAX. He said that there was a flight from Grayscale to other ETFs due to some of its disadvantages. However, this minor price correction is not a cause for concern. This setback is not a cause for panic or concern about bitcoin’s extreme drop.