Bitcoin: large outflows from ETFs, especially from BlackRock—what is happening?

In recent days there have been strong capital outflows from Bitcoin ETFs, particularly from the one by BlackRock. 

However, the current situation of the Bitcoin market is much more complex than it might appear from analyzing only these specific data. 

It is actually possible that precisely in these days it is going through a transitional phase that could put an end to one trend and start another. 

The outflows from BlackRock’s ETFs

Starting from last Friday, there have been almost half a billion dollars in total outflows from Bitcoin ETFs. The strange thing is that from BlackRock’s single ETF (IBIT) the outflows amounted to 650 million dollars, which is more than the overall total. 

This is due to the fact that six other ETFs in the same period recorded positive net inflows, although basically only three of them had significant ones: Bitwise’s BITB, Grayscale’s BTC and especially Ark Invest’s ARKB. It should be said, however, that Grayscale’s GBTC still recorded heavy outflows (GBTC is Grayscale’s historic ETF, while BTC is the more recent mini-ETF). 

What is most surprising are the 63 million dollars of inflows into ARKB, given that on average it receives only 2 million dollars of daily inflows. 

Therefore, while on the one hand there have been significant outflows in general, although far from record levels, on the other there has been a shift of capital from BlackRock’s IBIT in particular to Ark Invest’s ARKB. 

Indeed, to be precise, the shift occurred only on Monday, June 8.

The fact is that ARKB has lower fees than IBIT, so it may have been a rebalancing towards an ETF that is still very liquid but cheaper. 

These are classic institutional moves, certainly not retail ones, also because the vast majority of retail investors who invest in Bitcoin ETFs do so precisely in IBIT. 

The retail exodus

This seems to be the key point. 

Starting from the second half of May and up until June 4, there were heavy BTC sales by retail investors, including on crypto exchanges. 

On June 5, however, the trend reversed, with whales starting to buy. This was also the day when the price of Bitcoin recorded the annual low at around $59,000.

On the one hand, it is possible that the whales somehow wanted to protect $60,000, trying to prevent a further price collapse below this psychological threshold, while on the other they may have started accumulating precisely while retail investors were instead distributing. 

In other words, in recent weeks there has been a sort of retail exodus from the Bitcoin market, which ended precisely on June 5. 

Starting from Monday there may have been a turning point, with institutional investors getting back into the game. 

The possible short squeeze

Short squeezes are rapid and sharp price increases caused by the mass forced closing of short positions (i.e. short selling).

There are in particular two elements that suggest that whales may be about to cause, or take advantage of, a short squeeze.

The first element is the fact that negative funding rates on the Bitcoin futures markets most used by retail investors indicate precisely a majority of short positions. 

The second is that precisely today the funding rates on the markets most used by whales have practically gone to zero. In other words, whales, unlike retail investors, today do not seem to be short. 

If at some point the whales’ funding rates were to turn positive, it would mean that they have started opening long positions, and if retail investors remain short, it could be a good time for the whales to trigger the short squeeze. 

In other words, whales are able to manipulate the price just enough to push it up so as to trigger the forced liquidation of short positions, and since this type of forced liquidation involves the automatic purchase of BTC, the price of Bitcoin could rise. At that point they could close the long positions opened earlier at a profit. 

There is absolutely no guarantee that something like this will happen, but if the retail funding rate remains negative while the institutional one turns positive, the probability of a short squeeze increases. 

The turning point

A picture like this is compatible with a trend change. 

It does not necessarily have to be a medium-to-long-term change, but even if it were only a short-term change it would still be interesting. 

The repositioning of institutional investors on Monday, that is, at the reopening of the stock exchanges after the weekend, suggests precisely that something may have changed this week, so much so that one can even venture the hypothesis that this trend change could continue next week as well, at least in theory. 

Moreover, tomorrow will be a very important day because of SpaceX’s IPO.