BlackRock’s Bitcoin ETF Suffers Record Outflows Amid Crypto Slump

Blackrock’s spot bitcoin exchange-traded fund is enduring its most challenging month to date, coinciding with a significant decline in the underlying asset. Bitcoin is experiencing its largest monthly drop in over three years, raising concerns among investors who flocked to the cryptocurrency earlier in the year.

The iShares Bitcoin Trust ETF has witnessed substantial outflows this month, amounting to $2.2 billion as of Monday, according to FactSet data. This represents a considerable increase compared to the $291 million in losses recorded last October, which was previously the ETF’s second-worst month since its inception in early 2024. The sharp reversal highlights the inherent volatility and speculative nature of the cryptocurrency market, even within established investment vehicles.

Bitcoin’s current price stands at approximately $87,907.10 reflecting a decline of over 20% in the past month and more than 40% from its peak of over $126,000 in early October. This monthly downturn marks Bitcoin’s worst performance since June 2022, when its value plummeted by around 39%. The correction raises questions about the sustainability of the recent rally and the potential for further downside in the near term.

“There’s no doubt that hot-money investments have had significant outflows,” Jay Hatfield, CEO and portfolio manager at Infrastructure Capital Advisors, told CNBC. Hatfield suggests that the recent price action is primarily driven by speculative capital seeking quick profits, which is now rapidly exiting the market.

“The pullback is really focused on the gambling part of the market … and bitcoin is really the poster child for that,” he said. This suggests a broader shift in investor sentiment away from high-risk assets amid growing economic uncertainty.

Investors are seemingly rotating out of Blackrock’s bitcoin ETF and into safer havens like gold, signifying a growing risk-off sentiment amid heightened economic anxieties. The move highlights a broader investment strategy adaptation in response to prevailing market conditions.

Recent data from the University of Michigan indicates a sharp decline in consumer sentiment, nearing record lows, which tends to be a leading indicator of potential economic slowdown. Market participants are keenly awaiting upcoming data releases, including September retail sales figures and the Producer Price Index (PPI), which could offer further clues about the health of the U.S. economy. Furthermore, while market expectations, as reflected in the CME FedWatch Tool, point to a high probability of a Federal Reserve rate cut in December, the certainty of such a policy shift remains to be seen. The Federal Reserve’s decision will largely depend on incoming economic data and its assessment of the overall macroeconomic outlook.

Frank Chaparro, head of content and special projects at crypto-focused trading firm GSR, noted that existing uncertainties are causing investors to reduce their exposure to risky assets such as crypto.

“With the macro environment becoming less certain, investors tend to de-risk across assets, which often means trimming exposure to crypto and other risk-sensitive stocks,” Chaparro said. “And for newer entrants who came in through the funds, any downturn can be unsettling – they can sell just as quickly as they bought.” He further explained that the rapid influx of retail investors into spot bitcoin ETFs has created a pool of easily spooked capital, which can exacerbate price volatility during downturns.

Joshua Levine, chairman at bitcoin treasury firm OranjeBTC, offers a more nuanced perspective. While acknowledging the influence of short-term trading, Levine emphasizes that spot bitcoin ETFs have also attracted long-term institutional investors who are less likely to react to short-term price swings. These institutions can buffer the sell pressure while also smoothing out price spikes as cryptocurrency matures.

According to Levine, the institutional base could “dampen some of the extreme downside, but also smooth upside, reducing bitcoin’s volatility as the asset class matures.” This long-term perspective suggests that the impact of spot bitcoin ETFs on the overall Bitcoin market will be complex and multifaceted, extending beyond the immediate effects of volatile retail trading.