Bitcoin and Ethereum ETFs will save the market from severe volatility
On a tumultuous Monday, financial landscapes worldwide were rocked as Bitcoin plummeted beneath the $55,000 mark, Ethereum dropped to $2,200, and the markets saw liquidations exceeding $1 billion. However, providers of exchange-traded funds (ETF) speculate that the entry of institutional participants might have eased the market's turbulence.
Ryan Rasmussen, the research lead at Bitwise explained that ETFs contribute to moderating market fluctuations by attracting a broader investor base, which in turn enhances the liquidity for transactions
Rasmussen pointed out that on Monday, Bitwise's spot cryptocurrency ETPs witnessed substantial net inflows worth millions of dollars, indicating that investor demand was counteracting the urge to sell.
He attributes this phenomenon to the longer-term perspective of ETF investors, who are more inclined towards a 'buy-and-hold' strategy rather than succumbing to panic during market downturns, unlike day traders or those employing high levels of leverage.
Patrick Pan, the chairman and executive director at OSL, a custodian for ETFs in Hong Kong remarked that institutional investors generally possess longer-term investment objectives, a greater appetite for risk, and undertake more thoughtful investment strategies. This pivot towards institutional engagement has led to enhanced market stability.
This effect of stabilization was observable with the iShares Bitcoin Trust (IBIT), which maintained net neutral inflows despite a 14% value decline over the weekend. Similarly, U.S. Ethereum ETFs recorded their second highest daily inflows since their approval in July.
Following this steady capital infusion, leading cryptocurrencies like Bitcoin and Ethereum have recorded approximately 4% gains in the last 24 hours.
However, OSL cautions that it's not entirely free of challenges. ETFs might contribute to "heightened volatility during key periods," according to Pan. He explained that institutional investors are bound by strict risk management rules, often leading to portfolio rebalancing at the close of the month, quarter, or year.
