In a recently released analysis, cryptocurrency market researchers, Glassnode, sought to demystify the underlying forces that have caused Bitcoin to maintain a rather stagnant position in the face of rising inflows into spot exchange-traded funds (ETFs).
Spot ETFs, approved by the U.S. Securities and Exchange Commission in the early stages of this year, offer certain investors an auxiliary route into the nascent world of digital currencies. They have amassed significant demand since their launch. However, despite their initial successful contribution to Bitcoin reaching new heights, the cryptocurrency’s price has remained surprisingly flat for a while.
In a bid to explain the absent spike in the Bitcoin market, Glassnode pointed to an illustrative bar graph. The information exhibited there clearly showed that the aggregated reserve of these funds surpasses the holdings of the miners by a considerable margin. It however falls notably short of the amount held by centralized exchanges.
Specifically, while the spot ETFs boast of about 862,000 BTC to their name, the number displays an evident disparity against the 2.3 million BTC reserve of the centralized exchanges.
In an interesting revelation, the analytics firm revealed that the key player in the equation is the global crypto trading giant, Coinbase. It was reported that Coinbase’s vast custodial services account for a significant portion of the total exchange reserve and the U.S. spot ETF balance. Consequently, the implications of exchange transactions on market prices have gained prominence.
The report also unearthed pertinent details surrounding the rising trend of whale deposits into the Coinbase platform up until mid-April. Coincidentally, a sizeable majority of the whale deposits were attributed to inflows from the Grayscale Bitcoin Trust, an occurrence that likely amplified market selling pressure.
This rise in whale exchange inflows might partially answer why spot ETFs have not been as impactful as expected. Other factors such as the trending futures market dynamics might also be playing a subtle role in the game.
The report also points to the volume of future open interest on the Chicago Mercantile Exchange (CME). This has been high recently, which is an indication of an increased interest in cash-and-carry arbitrage strategy among traders.
Essentially, this strategy guarantees a market-neutral position. A trader can purchase a long spot position and also sell (short) a position in a futures contract of the same underlying asset which would be trading at a premium.
This might shed some light on why the inflows into the spot ETFs did nothing more than generating a neutral effect on the Bitcoin market prices.
However, there’s some positive news on the horizon for Bitcoin as it bounces back from a slight slump, showing an impressive recovery of more than 4% in the last day. Bitcoin price is now once again above the much-coveted $69,700 floor. This is sure to provide some hope to investors, even as the price of the asset continues moving sideways in what can only be described as an incredibly volatile market.