The crypto market, particularly Bitcoin (BTC), has been experiencing tumultuous waves due to the seemingly never-ending wait for the US Securities and Exchange Commission (SEC) to approve Bitcoin exchange-traded funds (ETFs).
These delays are causing a significant shift in market sentiment and triggering massive outflows of funds from digital asset investment products, according to a recent report by Coinshares.
Outflows and Volatility Hit the Global Market
Digital asset investment products, including Bitcoin (BTC) and other cryptocurrencies, have witnessed substantial outflows of around $55 million. This negative sentiment ripple effect is primarily in response to media buzz that the much-anticipated decision on a US spot-based ETF is not on the horizon.
As noted by Coinshares, Bitcoin saw a significant reversal in fortunes, with outflows totaling approximately $42 million. This comes after a brief period of inflows seen in the previous week.
Adding to the woes, short Bitcoin strategies have experienced outflows for nearly the 17th consecutive week, barring a minor exception of $2,000 inflows, totaling around $2.2 million.
Ethereum, Polygon, Litecoin, and Polkadot also joined the ranks of outflow-impacted assets.
Ethereum, the second largest crypto by market cap, experienced outflows of $9 million, while Polygon (MATIC), Litecoin (LTC), and Polkadot (DOT) saw respective outflows of $0.9 million, $0.6 million, and $0.5 million. Even blockchain equities weren’t spared, with $6 million in outflows in the previous week.
The impact of these outflows also reverberated across different regions. Canada and Germany, in particular, felt the brunt of the outflow trend, suffering outflows of $36 million and $11 million, respectively. However, Switzerland seemed to defy the trend slightly, experiencing minor inflows amounting to $3.5 million.
SEC is a Key Catalyst for Market Volatility
The SEC’s role in these developments can’t be overlooked. The commission has been dragging its feet in deciding on various Bitcoin ETF applications, creating frustration among investors.
The recent extension of the decision deadline for the Ark 21Shares Bitcoin ETF until early 2024 is a prime example of this delay. This has led some investors to sell their Bitcoin (BTC) holdings, feeling frustrated by the lack of regulatory clarity.
Furthermore, the SEC’s approval of futures-based Bitcoin ETFs while shying away from spot-based ones has sent mixed signals to the market. Unlike spot ETFs, futures-based ones don’t closely track the price of Bitcoin and tend to be more volatile. This decision has raised concerns about the SEC’s commitment to responsible Bitcoin and crypto regulation.
The SEC’s stance remains pivotal in determining the market’s direction. If the SEC greenlights a spot Bitcoin soon, it could potentially reinvigorate the market, bringing back lost investor confidence. However, the alternative scenario of prolonged delays could exert further downward pressure on prices, prolonging the ongoing market turbulence.