The mystery surrounds the $ 500 million outflow from the Bitcoin ETF

(Bloomberg) – North America’s first Bitcoin exchange-traded fund is at the center of a guessing game in the cryptocurrency market after seeing record one-day outflows of $ 500 million last week.

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The withdrawals from the Purpose Bitcoin ETF (ticker BTCC) accounted for about 24,510 Bitcoin, or about 51% of its assets under management on Friday, according to data collected by Bloomberg and analysts.

“Obviously, this was more of a major outflow in this case, and for me this is more a reflection of investors’ views on the market,” said Vlad Tasevski, CEO of Purpose Investments. He added that the company does not have direct insight into who executes the trades, given how the structure of the ETF works. “Even though we knew it, we typically do not comment on what our customers are doing.”

The sale came as the crypto market underwent an intense sale that went into the weekend. Bitcoin tumbled as much as 15% to $ 17,599 on Saturday, the lowest level since the end of 2020. The largest cryptocurrency measured in market value has fallen about 70% from its record high in November. The foundation debuted in February 2021.

“The huge outflows are likely caused by a foreclosure in a huge liquidation. The forced sale of the 24,000 BTC could have triggered BTC’s move down to $ 17,600 this weekend,” Vetle Lunde, an analyst at Arcane Crypto, wrote in a research report.

Nate Geraci, president of The ETF Store, a consulting firm, agrees that the outflow appears to be a forced sale. And it may be the case that some holders – or holders – may have needed the underlying Bitcoin quickly.

For example, it may involve a large trader using margin who is unable or unwilling to meet a margin call, he said. Or it might be another situation where a person or entity has to meet a loan obligation where the lender has the option to liquidate and secure the pledged collateral that supports the loan, Geraci added.

Bitcoin futures and spot ETFs have been popular with investors who are not willing to hold Bitcoin but want to achieve this exposure in their portfolios. Funds have been hit hard lately in the midst of the fall in the price of the cryptocurrency. Bitcoin ETPs have seen net outflows of 18,315 coins per June 21, according to Arcane Crypto.

“This is by far the most serious redemption we have seen in the relatively short-lived BTC ETF history and has helped shrink Purpose’s Bitcoin under management down to low levels not seen since October 2021,” Lunde said.

Europe had several crypto-tracking products acting as an ETF before the Purpose Fund was launched. The US Securities and Exchange Commission has repeatedly rejected requests for a physically supported ETF, citing price volatility and the risk of market manipulation.

“The recent crypto-bloodbath has shown that there is no shortage of leverage in the system, which works well on the way up, but not so well on the way down,” Geraci said, adding that he does not see the problem as being ETF-related. . “The bottom line is that forced liquidations of over-leveraged crypto traders are likely to trigger Bitcoin’s crash, not something that pertains to the Bitcoin ETF structure.”

(Adds company and analyst comment beginning in third paragraph.)

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