BlackRock's Bitcoin ETF Bleeds $2.7B in Longest Outflow Streak Since Launch

BlackRock's iShares Bitcoin Trust (IBIT), the largest spot Bitcoin ETF, is experiencing one of its worst periods since its launch.  This is noticeable in the fact that investors are withdrawing from the ETF at the fastest rate since 2024.

Over the last five weeks, investors have recorded $2.7 billion in net outflows, raising concerns about short-term investor confidence and the larger role crypto ETFs will play in the cryptocurrency market.  In this article, we'll dive deeper into those concerns and the causes of the outflow.

IBIT's Rapid Rise to Market Dominance

When the US regulatory agencies approved Bitcoin ETFs in 2024, it was the first crypto ETF, and it quickly emerged as the largest ETF, since Bitcoin is the most widely used crypto.  The fund was managed by some of the world's best asset managers, and it quickly exposed investors to Bitcoin without the risk of direct custody.

Over the years, it has accumulated tens of billions of dollars, and because of its size, the inflows play an important role.  Large inflows help fuel bullish momentum, while outflows could have the opposite effect.

Breaking Down the $2.7B Outflow Streak

The current wave of outflows began in late October and continued through November, with a single session losing more than $523 million.  This was the largest single-day outflow in all five weeks.  Combined, the fund lost almost $3 billion, and the losses are ongoing.

During the same quarter, IBIT's performance has declined by roughly 19%.  This means there's a negative feedback loop: the fund is losing money, causing investors to pull out, which further leads to worse outcomes.  According to experts such as those at Webopedia, the problems crypto ETFs are facing have little to do with crypto and reflect broader financial difficulties the markets are facing.

Why Are Investors Pulling Money Now?

There are several reasons the investors are pulling their money now.  First of all, the price adjustment in Bitcoin has had this effect because investors chose to take profits after a year of stronger gains.  Many investors entered the fund during a bullish period and are now reducing their risk exposure.

Secondly, it's common to rebalance the portfolio at the end of the year and cut losses when needed.  This is why so many investors are using the last couple of months to reduce their exposure to crypto ETFs and other funds.

Thirdly, the competition coming from other assets has become fierce.  Equities tied to artificial intelligence are taking over from those tied to cryptos, as many investors see AI as the next big thing that will dominate the industry in the years to come.

Impact on Bitcoin's Price and Market Liquidity

The fund actually holds Bitcoin; a reduction in investment could affect its price by putting pressure to sell.  This isn't something that always happens or happens right away, but it's a common trend.

There are also effects on liquidity to consider.  ETFs have become a major source of daily Bitcoin demand.  This means that market depth can thin, and Bitcoin can become more volatile if there's a long-term outflow.

What Does This Mean for Investors?

For investors, such changes show that Bitcoin's price is still closely tied to market sentiment and remains volatile.  That's the case even now, when cryptos have the support of traditional financial markets, such as the stock market.

The only way to hedge against such volatility is to have a diverse portfolio of investments, including cryptos and beyond.  By investing in diverse assets across markets and technologies, investors can reduce risk even if some assets fail in the long run.  They should also avoid chasing investment trends and focus on assets that deliver long-term value.

What Indicators to Watch

Investors should pay close attention to a few indicators to see if sentiment is changing and ETFs are recovering.  This includes weekly flow reports, which are publicly available, and total assets under management reports, which ETFs also publish on a regular basis.

Other than that, the investors should also follow similar indicators for Bitcoin itself.  The momentum could quickly reverse, as it often does for crypto investors, so the outflow streak doesn't mean it's time to panic and sell right away.

To Sum Up

BlackRock's $2.7 billion outflow streak shows that the ETF isn't performing as well as it did for the past two years.  The trend has been taking quite a long time, and at one point it featured the largest single-day outflow in the history of crypto ETFs.

The causes of this trend are complex and involve broader market changes beyond Bitcoin and cryptos themselves.  Investors should follow indicators that can predict future trends and inform their decisions.  The trend could reverse just as quickly.