Recent correlation data suggests FOMO-driven investors are fueling demand for newly authorized Bitcoin ETFs, impacting market dynamics.
Bitcoin ETF Buyers Appear to be Chasing Rally, Correlation Data Suggests
FOMO – fear of missing out – on Bitcoin’s recent rally appears to be helping to drive demand for the batch of exchange-traded funds approved last month to directly hold the cryptocurrency. The nine new funds that were authorized have seen some of the highest daily investor inflows over the past three days since they were launched. Demand rose as Bitcoin was in the midst of a seven-day rally that pushed the price to $50,000 on Monday for the first time since December 2021.
After a rocky start to the month, flows across the group of Bitcoin funds have remained highly correlated to the price of Bitcoin, data compiled by Bloomberg show. The five-day correlation coefficient for Bitcoin and the funds hovered around 0.87 on Monday. A coefficient of 1 means the assets are moving in lockstep, while minus 1 would show they’re moving in opposite directions.
The correlation between ETF flows and the price of Bitcoin briefly inversed on Feb. 6, the first day of Bitcoin’s recent rally, suggesting that ETF flows may have a delayed reaction to the price of Bitcoin itself.
Rising in-flows into ETF offerings from BlackRock Inc. and Fidelity Investments have led the recent surge, but decreasing outflows from Grayscale Investment’s Bitcoin ETF, which converted from a trust following SEC approval, also appear to have played a significant role.
As in-flows increase, ETFs effectively take Bitcoin out of circulation and drive a “supply shock” in the market, according to Matt Sheffield, senior vice president of trading at FalconX Holdings Ltd.
“Overall, I think we’re seeing the beginning of a supply shock that will likely amplify as the ETFs buy more of the outstanding supply,” Sheffield said. “As this occurs, I expect Bitcoin’s price to become further correlated to inflows, as liquidity becomes a larger and larger driver.”
By Orlando J. Gutiérrez