7 months ago
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Bitcoin’s volatility in Asia is linked to automated trading reacting to US ETF flows, causing significant market swings as investors react to data on outflow and inflows from spot-Bitcoin ETFs.
Bitcoin traders across Asia experienced heightened price swings, potentially due to algorithmic trading bots responding to data on cryptocurrency ETFs listed in the US, according to Bloomberg. The crux of the issue lies in timing differences. Figures showing investor demand for spot-Bitcoin ETFs become public in Asia after US markets close.
The timing gap allows Asian traders to react to the previous day’s fund flow data, potentially leading to amplified price swings. On April 2nd, 2024, Bitcoin experienced its worst Asian morning with a decline of 6%. This coincided with data indicating a withdrawal of funds from U.S. Bitcoin ETFs.
Shiliang Tang, president of principal trading firm Arbelos Markets, said:
“From an algorithmic trading perspective, bots can basically auto-scrape this data and buy and sell based on this, […] It seems that’s basically what is happening.”
The launch of US Bitcoin ETFs in January affected the market strongly. These ETFs have drawn $12 billion since January 11th, 2024. The most inflows happened in early March, when Bitcoin hit a record $73,798. But the sector has seen outflows recently, partly caused Bitcoin’s 11% drop from its all-time high.
The recent market’s behaviour reveals the Asian-hours market returns. As Tang notes, Asian trading hours yielded robust returns in February and early March, though this trend waned later that month, likely due to shifting dynamics within US-based Bitcoin exchange-traded funds.
Bitcoin’s Automated Trading Impact on Spot Markets
Automatic trading has wider impacts on the spot market. Data from Coinglass show that on Tuesday, around $354 million worth of optimistic crypto investments were closed out. This large amount, the biggest in two weeks, shows how automated trading techniques can trigger a domino effect across various financial markets beyond just the initial trades.
Bitcoin’s current valuation is around 5.5% of its entire supply within the collective ETF industry. This vastly overshadows the 1% held by gold-based ETFs, as per an analysis by Charlie Morris, the Chief Investment Officer at ByteTree Asset Management. Morris deduced that “ETF flows are, therefore, more important for Bitcoin than gold”.
Early Wednesday, April 3rd, 2024, Bitcoin faced challenges, trading at $66,200 in Singapore, a 0.57% decrease from Tuesday’s closing price. This dip stemmed from factors like the discussed ETF flows and diminishing anticipation of interest rate reductions by the Federal Reserve.
Looking forward, a possible positive factor for Bitcoin might be the approaching halving event scheduled on April 20th 2024. This event, taking place every four years, decreases the issuance of new Bitcoin units, and certain traders anticipate it may act as an upward influence on the price.
Market Maturation
Jakob Kronbichler, co-founder of Clearpool Finance, a decentralized credit platform, said that market trends usually follow ETF flow figures. Additionally, substantial enthusiasm over recent weeks allowed a correction, enabling the market a temporary pause.
“Typically markets have been taking the cue from the ETF flow number, […] Also, there’s been a lot of excitement over past couple of weeks, and the correction is natural for the market to take a bit of a breather, said Jakob Kronbichler,” co-founder of decentralized credit marketplace Clearpool Finance stated.
The current volatility underscores the evolving role of algorithmic trading and ETF flows in shaping Bitcoin’s price movements. As the market matures, investors can expect a more nuanced interplay between these factors and traditional forces of supply and demand.
