Bitcoin investors in Asia are experiencing significant price swings as automated trading protocols react to flows data from US exchange-traded funds (ETFs) that hold the cryptocurrency. The impact of these automated trading algorithms is particularly felt during Asian trading hours following the close of US share trading, when daily figures on the demand for spot Bitcoin ETFs are released. On Tuesday, Bitcoin experienced its worst decline in a month during the Asian morning as investors reacted to flows data indicating a withdrawal of funds from Bitcoin ETFs. Trading bots can automatically analyze and react to this data, resulting in buying or selling actions, contributing to pronounced market swings.
Since their launch on January 11, US Bitcoin ETFs have attracted a net inflow of $12 billion, with inflows peaking in the first half of March coinciding with Bitcoin’s record high of $73,798. However, the sector has experienced periods of outflows since then, and Bitcoin has declined approximately 11% from its all-time peak. This pattern of flows helps explain why market returns during Asian trading hours were particularly strong in February and early March but weakened later in March. The impact of algorithmic protocols dumping Bitcoin extends beyond the spot market and affects the derivatives market as well, with approximately $354 million of bullish crypto wagers being liquidated on Tuesday alone.
The significance of ETF flows in the Bitcoin market can be seen when comparing it to other assets. Bitcoin ETFs hold about 5.5% of the total Bitcoin supply, while gold ETFs hold only 1% of the total gold supply, indicating that ETF flows have a greater influence on Bitcoin prices compared to gold. Bitcoin has recently experienced a nearly 6% drop and continues to struggle to regain traction, currently trading at around $65,400. Diminished expectations of Federal Reserve interest-rate cuts present an additional challenge to digital assets. Despite recent setbacks, Bitcoin has shown remarkable growth, surging approximately fourfold since the beginning of 2023 when it started its recovery from a bear market. The upcoming halving event, which will reduce the supply of new Bitcoin tokens, is viewed by some traders as a potential support for prices.
Market participants have been closely monitoring ETF flow numbers as a key indicator of market sentiment. Jakob Kronbichler, co-founder of decentralized credit marketplace Clearpool Finance, suggested that the recent correction in Bitcoin’s price is a natural response to the market’s excitement over the past few weeks and serves as an opportunity for the market to take a breather. The automated response of trading bots to ETF flows data plays a significant role in market fluctuations, with Asian investors feeling the impact most strongly during trading hours following US share trading. The recent market drop in Asia serves as a good example of how these automated trading protocols react to flows data from US Bitcoin ETFs, leading to buying or selling actions in the market.
