The recent launch of spot Bitcoin Exchange-Traded Funds (ETFs) led by industry giants BlackRock and Fidelity has generated significant attention and excitement. These ETFs have seen massive net inflows totaling $5.278 billion in a short six-week period, indicating strong interest from investors. Despite this, the price of Bitcoin (BTC) has not experienced the significant surge that some may have expected following such a milestone event.
Prior to the launch of the BTC ETFs, the price of Bitcoin reached a peak of $49,040 on January 11. However, the current price of BTC is hovering around $51,000, reflecting a modest appreciation of only 4.3%. This subdued performance has left many market observers surprised, given the huge inflows into Bitcoin ETFs. One possible explanation for this lackluster price action has emerged from an analysis conducted by CryptoQuant CEO Ki Young Ju.
Ki Young Ju’s analysis revealed that over 700,000 BTC were transferred to Over-The-Counter (OTC) desks, predominantly used by miners, in the weeks following the approval of the spot Bitcoin ETFs. This transfer represents approximately $35.6 billion at current market prices. OTC desks facilitate direct transactions between parties, allowing for the trading of large volumes of Bitcoin without causing immediate price fluctuations on public exchanges.
The strategic utilization of OTC transactions by ETF issuers and other large-scale buyers has allowed them to accumulate significant amounts of Bitcoin without impacting the market price. By acquiring Bitcoin through OTC channels, these entities can avoid triggering price volatility that would likely result from massive purchases on open exchanges. Ju theorizes that if the 700,000 BTC had been bought on the spot market, Bitcoin’s price would have experienced a more substantial increase than the observed 4.3%.
Potential Supply Shock
Looking ahead, there is a possibility of a supply shock in the Bitcoin market. As the OTC supply dwindles and entities like BlackRock need to buy Bitcoin on public exchanges to back their ETFs, the price of BTC could react swiftly to this increased demand. With the upcoming BTC halving in April potentially limiting the amount of Bitcoin miners can sell, the combination of constrained supply and sustained demand could lead to significant price movements in the future.
The impact of OTC Bitcoin transactions on price action is a complex and multifaceted issue. The strategic use of OTC desks by large buyers has played a crucial role in influencing Bitcoin’s price dynamics following the launch of spot ETFs. As the market continues to evolve, the interplay between OTC transactions, ETF issuers, miners, and market dynamics will be essential to monitor. Investors should conduct thorough research and consider the potential implications of these factors before making investment decisions in the crypto market.