CoinFactiva Analysts: Record Outflow from Hong Kong ETFs

Record Outflow from Hong Kong ETFs: Bitcoin Faces Volatility Amid Market Shifts and Economic Uncertainty

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The launch of spot ETFs in Hong Kong in early May was the last major event that could have moved Bitcoin off its stagnation point. The small capitalization of the ETF market at $50 billion (compared to $9 trillion in the US) was offset by rumors of a soon-to-be inclusion in the Stock Connect system, which would grant access to mainland Chinese investors.

These hopes were dashed when the Hong Kong Stock Exchange denied the rumors. On May 13, 2024, Chinese ETFs with Bitcoin saw their largest outflow of $32.7 million.

American ETFs are not faring much better: after a month of sell-offs, they returned to a nominal inflow, closing the last week with $286 million.

In this situation, Bitcoin is showing good performance, avoiding a full correction. The maximum drawdown from its record level is only 23%, whereas in previous bull cycles it ranged from 36% to 71%.

One of the key factors in stabilization is institutionalization. As Bitcoin gains recognition and is integrated into the traditional financial system (through ETFs), volatility decreases. Whereas large American investors previously avoided the asset due to the risk of sudden bans on cryptocurrency operations (as happened in China), they are now increasingly considering investments.

Even JPMorgan, whose CEO once called Bitcoin a fraud and an asset with zero value, declared to the SEC on May 10 the purchase of shares in spot Bitcoin funds totaling $760,000. The purchase size is modest compared to their assets under management, but it marks the beginning of investments in cryptocurrency.

As the inflow into spot ETFs has significantly slowed and exchange activity dropped by 43.8% in April (compared to March), macroeconomic factors are coming to the forefront.

This week, the main focus will be on data from the US. The Federal Reserve had planned to start lowering the key rate in June, but the rise in inflation to 3.5% in March forced a revision of the timeline.

However, according to CoinFactiva analysts, April data could bring a surprise: if there is a significant decrease in inflation, the chances of a monetary policy reversal in the summer will increase significantly. This, in turn, would strengthen risk assets, including Bitcoin. The data will be released today, May 15.

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