Bitcoin investors in Asia are witnessing notable price fluctuations triggered by automated trading algorithms responding to data from US exchange-traded funds (ETFs) that hold the cryptocurrency.
According to a Bloomberg report, the impact of these automated trading protocols is particularly pronounced during Asian trading hours following the closure of US share trading, coinciding with the release of daily figures on the demand for spot Bitcoin ETFs.
The recent downturn in the Asian market serves as a prime example of the influence wielded by these automated trading protocols. On Tuesday, Bitcoin experienced its most significant decline in a month during the Asian morning session, as investors reacted to data indicating a withdrawal of funds from Bitcoin ETFs.
Bitcoin ETF Flow – 01 April 2024
All data in. $86m net outflow pic.twitter.com/XvBwCUYvVE
— BitMEX Research (@BitMEXResearch) April 2, 2024
Automated trading bots engage in buying and selling activities based on data concerning ETF flows.
Shiliang Tang, who serves as the president of Arbelos Markets, a prominent principal trading firm, offered insights to Bloomberg regarding the role of trading bots in response to ETF flows data. Tang explained that these automated algorithms have the capability to swiftly analyze incoming data and execute corresponding buy or sell orders. This automated reaction is considered a significant driver behind the noticeable fluctuations observed in the market.
Since their introduction on January 11, US Bitcoin ETFs have garnered considerable attention, accumulating a total net inflow of $12 billion. The peak influx occurred in the initial half of March, coinciding with Bitcoin’s record-breaking high of $73,798. However, the sector has seen periods of outflows since then, leading to an approximate 11% decline in Bitcoin’s value from its peak. This fluctuation in flows elucidates why market performance during Asian trading hours exhibited robustness in February and early March but gradually weakened as March progressed.
Furthermore, the influence of algorithmic trading protocols transcends the spot market and extends into the derivatives market. Data from Coinglass indicates that approximately $354 million worth of bullish crypto positions were liquidated on Tuesday alone, representing the highest liquidation volume recorded in about two weeks.
The movement of funds within ETFs has a profound impact on the Bitcoin market.
The influence of ETF flows on the Bitcoin market is substantial, particularly when compared to other assets. Charlie Morris, the Chief Investment Officer at ByteTree Asset Management, points out a significant contrast: while Bitcoin ETFs hold approximately 5.5% of the total Bitcoin supply, gold ETFs hold just 1% of the total gold supply. This highlights the heightened impact ETF flows have on Bitcoin prices relative to gold.
Tuesday saw Bitcoin undergo a notable decline of nearly 6%, struggling to regain momentum and currently trading around $65,400. Compounding these challenges are reduced expectations of Federal Reserve interest-rate cuts, posing further obstacles for digital assets.
Despite recent setbacks, Bitcoin has demonstrated remarkable growth, experiencing a fourfold surge since the onset of its recovery from a bear market in 2023. Moreover, the upcoming halving event, set to decrease the supply of new Bitcoin tokens, is viewed by some traders as a potential stabilizing factor for prices.
Market participants have been closely monitoring ETF flow data as a pivotal indicator of market sentiment. Jakob Kronbichler, co-founder of decentralized credit marketplace Clearpool Finance, suggests that the recent price correction in Bitcoin reflects a natural adjustment after weeks of heightened market excitement, providing an opportunity for the market to recalibrate.
