The portfolios achieved a negative return of between -17% and -20% in April.
Bitcoin has decreased from $71,000 to approximately $61,000 in the past month. After seven months, the continuous rise of Bitcoin has come to an end. Other crypto coins also achieved negative returns, which strongly suggests that the market has taken a breather.
The negative return is partly because the inflow of new capital into Bitcoin has leveled off over the past month. In March, the American Bitcoin ETFs registered approximately $5 billion in new capital, over the whole month of April there was no inflow but even an outflow of $500 million. At the beginning of May we can conclude that the Bitcoin ETFs have less and less impact on the short-term developments of the market because the volumes of the inflow or outflow are relatively limited. Last month (in addition to the price correction) was dominated by the four-yearly Bitcoin halving. The halving was ultimately a non-event at the time, the real effects of the halving should become visible in the coming months/years in the form of a reduced supply of Bitcoin. A few weeks after the halving, it became apparent that the transaction costs for a Bitcoin transaction are slightly higher than before the halving. There is also a small decline in computing power on the Bitcoin network, because unprofitable miners will switch off equipment. It is clear that the Bitcoin mining industry will change, with only the strongest parties remaining. According to some models, the costs of mining a Bitcoin are already above $100,000 per Bitcoin. From a rational point of view, it is therefore wiser for most miners to buy Bitcoin in the market than to mine Bitcoin.
Looking at the longer term, the ETFs confirm the view that the price of Bitcoin is largely driven by significant purchases and sales. A major advantage is that the published figures of the ETFs provide insight for the first time into what happens behind the scenes. In the recent period, the outflow of capital has caused a correction from the top to the bottom of about 30%. In a bull market, these are not unusual corrections, Bitcoin has now risen about 15% from the bottom and the previous losses have been partially recovered. What is striking is the resilience of Bitcoin, hundreds of millions in forced sales by short-term holders are being bought at a competitive price by long-term investors. Much of the outflow from short-term investors has been forced through Grayscale’s Bitcoin ETF. This ETF continues to have an impact on the market due to its bizarre statistics. As of the end of April, the ETF had already sold $17.5 billion worth of Bitcoin in approximately 3 months. Daily outflows ranged between $25 and $640 million daily. After 78 trading days, early May finally saw an inflow into the Grayscale ETF (+$63 million). This ends a negative streak of 78 days and the start of May has been positive for Bitcoin.
Looking ahead to the rest of 2024, interest rates are expected to have an impact on financial markets. Looking back at the past two years, we see that Bitcoin has shown a significant increase, in an environment in which the US policy interest rate has risen from 0% to 5.25%. There was a feeling among a number of investors that Bitcoin’s success depended on low interest rates and the excess liquidity policy of central banks. The past two years show that Bitcoin (in contrast to shares, bonds and real estate) is less dependent on interest rates. In an ideal scenario, this will be confirmed in the coming period when interest rates fall.