More than a billion enters bitcoin ETFs, but the price remains stagnant — an analyst provides insight.

Bitfinex analysts contend that ETF inflows may be misinterpreted as immediate spot demand.

Analyst clarifies BTC‘s rangeplay following ETF inflows. (geralt/Pixabay)

Key points:

• Spot bitcoin ETFs listed in the U.S. have garnered around $1.4 billion in inflows over the last five days, despite bitcoin’s price showing minimal change.
• Analysts at Bitfinex suggest that ETF inflows can be misinterpreted as immediate spot demand since authorized participants typically create and short ETF shares prior to acquiring the underlying bitcoin, resulting in a delay in genuine spot-market purchases.

The U.S.-listed spot bitcoin BTC$68,103.49 exchange-traded funds (ETFs) have regained investor interest, with $1.4 billion allocated over the past five days. Nevertheless, the spot price of bitcoin remains relatively stagnant.

One potential reason, in addition to rising geopolitical tensions and increases in oil prices, is the inherent mechanics of the ETFs themselves, as noted by analysts from the cryptocurrency platform Bitfinex.

The analysts communicated in a message to CoinDesk that ETF inflows may be overly interpreted as immediate spot demand, pointing out that the structure of ETFs frequently results in a delay between inflows and actual bitcoin acquisitions. This means that bullish price pressure can manifest with a delay, causing prices to remain static in the interim.

An ETF is an investment vehicle that aggregates assets, such as bitcoin, and issues shares that are traded on stock exchanges similarly to regular stocks. The fund aims to closely follow the value of its underlying assets, with each share representing a claim on those holdings. In January 2024, a total of 11 spot ETFs were launched in the U.S., and since then, these funds have collectively seen inflows exceeding $55 billion.

The shares are generated and redeemed by authorized participants (APs), which are specialized financial entities like major banks, market makers, or broker-dealers. When interest in the ETF increases, its price can rise above the fund’s net asset value, prompting APs to create new shares, sell them to buyers, and narrow the pricing gap.

Frequently, APs sell shares they do not possess at that moment—a process referred to as shorting. In conventional markets, short-selling regulations typically require most investors to borrow shares first; however, regulators permit APs to short ETF shares almost immediately and purchase equivalent bitcoin within hours or by the next business day, depending on whether the creations are made in cash or in-kind.

Consequently, ETF demand can escalate while actual BTC purchases in the spot market are postponed. By the time these BTC acquisitions occur, they are often countered by other selling pressures in the broader market, which can help lessen the bullish effect on price and maintain Bitcoin’s trading within a narrower range.

This likely accounts for the recent increase in inflows alongside the lack of notable price movement, according to analysts from Bitfinex.

“The outcome is that the ETF expands, yet the actual BTC price remains stagnant because there has been no purchasing in the spot market. This can create a perception that the BTC price is ‘stuck’ or suppressed,” the analysts remarked.

“Generally, this does not exert a significant impact on the market; however, during times of extreme market dislocation, the disparity between ETF demand and actual BTC spot buying, or vice versa, can lead to a brief period of market mispricing,” the analysts added.