After 75 days of listing, Citigroup calculated the impact of ETF on Bitcoin: 50%!

Since being approved for listing on January 11th, Bitcoin ETF has become a hot topic in the global capital markets. In the past two months, it has continuously set records for fund inflows, also driving a significant increase in the spot price of Bitcoin this year.

On March 26th, Citigroup analysts David Glass and Alex Saunders pointed out in a report that in the 75 days after the listing of Bitcoin ETF, net inflows reached $11.3 billion, explaining nearly 50% of the Bitcoin price fluctuations. Starting from March 20th, the ETF has seen continuous net outflows, coinciding with the time of Bitcoin price correction after reaching a historical high:

After the launch of Bitcoin ETF, the price of Bitcoin surged sharply in early February. However, after Bitcoin hit a historical high, the marginal effect of the ETF diminished and fund inflows slowed down, indicating a possible period of market volatility. During the same period, macro variables such as the U.S. stock market, gold, and real interest rates showed very little correlation with Bitcoin returns.

The trading volume of Bitcoin spot and futures significantly increased compared to before the ETF launch, and the open interest in futures contracts also saw a substantial rise. The futures market financing rate surged sharply after the ETF launch and during the rapid price increase, reflecting strong demand for leveraged trading. However, it later fell back to more normal levels.

ETF Flows Driving Bitcoin Trends

Citigroup pointed out that after the listing of Bitcoin ETF, the trading activity in the cryptocurrency market significantly increased, with a larger influx of funds and a noticeable rise in demand for leveraged trading, leading to a rapid increase in cryptocurrency prices. But as the market hype cooled slightly, trading activity and leverage demand began to return to normal levels. The changes in these indicators are generally consistent with the trends in cryptocurrency prices and ETF fund flows:

Since the launch of the ETF on January 11th, nearly 50% of Bitcoin's weekly price fluctuations can be explained by the net inflow of the ETF. There was a sharp rebound after the ETF launch, but as the inflow into the ETF stopped, the upward trend began to slow down.

The trend of trading volume (spot + futures) and Bitcoin futures open interest (OI) is overall consistent with the trends in cryptocurrency prices and ETF fund flows—softening after the initial ETF launch, then rapidly rising in early February.

During the period of rapid increase in cryptocurrency prices, there was a significant increase in traders' demand for leveraged trading. This is evidenced by the sudden rise in funding rates for perpetual cryptocurrency futures contracts. The funding rate is an interest rate paid from the long side to the short side, representing the funding cost for both long and short positions in the market When the demand for long positions is strong and the market sentiment is bullish, the funding rate will rise.

JP Morgan analyst Nikolaos Panigirtzoglou emphasized in a previous report that the continuous increase in open positions of Bitcoin futures and the decrease in ETF flows are significant signals of a bearish trend in Bitcoin prices. The net inflow speed of Bitcoin ETFs has slowed significantly, with a substantial outflow of funds in the past week, changing the previous trend of continuous inflows into Bitcoin ETFs.

Naeem Aslam, Chief Investment Officer of Zaye Capital Markets, also warned that after Bitcoin spot prices hit a historic high, retail investors' enthusiasm is fading. He mentioned that many people are questioning the strength of the Bitcoin price rebound and are concerned that if sentiment becomes unstable, Bitcoin could experience a significant pullback, with prices falling below $50,000