Bitcoin ETFs Herald Less Febrile Token Longer Term, Traders Say

(Bloomberg) — Bitcoin started the week with a decline that fueled fears of an exit from U.S. private exchange-traded funds. Instead, bearish buyers poured in cash, a pattern that some say points to a less volatile token over the long term.

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A net $737.5 million was added to 11 ETFs in the four days through Thursday, with Bitcoin settling near $58,000 after falling to $53,602 on July 5 following sales of seized tokens and fears that it would be sold off by creditors of the collapsed Mt. Gox exchange.

Market participants argue that ETFs from giants such as BlackRock Inc. and Fidelity Investments offer the kind of underlying demand that can smooth out price swings. The six-month portfolios have accumulated about $51 billion in assets — more than 4% of Bitcoin’s supply — and their largest holders include hedge funds and wealth advisors. Such specialized institutions contrast with individual investors who were drawn to crypto as a get-rich-quick trade in previous years.

“The increasing institutionalization of Bitcoin ownership will lead to reduced volatility over time,” said Richard Galvin, co-founder of hedge fund DACM. He added that products such as ETFs offer a category of investors “more likely to make countercyclical purchases.”

Decreasing Trend

Indicators of Bitcoin’s swings have already trended lower over the past decade, but remain higher than assets like stocks or gold. For example, the difference between 180-day measurements of realized volatility for the token and the yellow metal has narrowed by more than 100 percentage points over the period, to 28 percentage points.

“When the price of gold falls, there are many value buyers, such as bullion dealers, jewelers and central banks, who enthusiastically buy the dip,” said Charlie Morris, chief investment officer at ByteTree Asset Management. “These value buyers naturally help suppress volatility. With early institutional adoption, Bitcoin has seen growth in value buyers.”

According to research published on the CFA Institute’s Entrepreneurial Investor forum, the token still periodically crosses wide price ranges throughout a trading day (so-called range-based realized volatility), which could fuel the perception that Bitcoin is generally much more skittish than other assets.

“We are a long way from Bitcoin’s volatility falling to a level where it loses its appeal to investors,” said Caroline Mauron, co-founder of digital asset derivatives liquidity provider Orbit Markets. “Its volatility is still higher than almost all traditional assets.”

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Smaller Tokens

Speculators craving intense price swings also have plenty of other digital coins to choose from, from tokens like Solana to meme-crowd favorite Dogecoin. Bitcoin accounts for 50% of the $2.2 trillion cryptocurrency market, up from 90% a decade ago, reflecting the rise of smaller crypto assets, CoinGecko data shows.

Bitcoin hit a record high of $73,798 in March, helped by U.S. ETFs, before falling back. Other impacts of ETFs include increased market liquidity and greater clustering of transactions around U.S. market hours, research firm Kaiko said. Bitcoin funds listed in Hong Kong and Australia after U.S. offerings went live.

Le Shi, head of trading at market-making firm Auros, argued that an expanding Bitcoin ETF deck creates “natural upward pressure” on the token’s price. “As the asset class grows and the price goes up, volatility tends to decrease as it becomes harder to move the price significantly,” Shi said.

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