“Obviously, it’s a relatively large outflow, and to me, it’s more of an investor’s view of the market,” said Vlad Tasevski, chief operating officer at Purpose Investments. He added that given the structure of the ETF, the company does not have direct knowledge of who made the trades. “We generally don’t comment on our clients’ actions, even if we knew.”
The cryptocurrency market had previously experienced a severe sell-off that continued into the weekend. On Saturday, bitcoin tumbled as much as 15% to $17,599, its lowest level since late 2020. Its market value is down about 70% from its record high in November. The Purpose Bitcoin ETF comes out in February 2021.
“The huge outflow may have been a forced sell due to a massive liquidation by one seller. The forced sale of 24,000 may have been the reason Bitcoin fell towards $17,600 over the weekend,” Arcane Crypto analyst Vetle Lunde stated in a research report.
Nate Geraci, president of consulting firm The ETF Store, agrees that the outflow looks like a forced sell. It is possible that one — or some — of the holders urgently needs the Bitcoin as the underlying asset.
He said it was likely because a large trader who traded on margin was unable or unwilling to make a margin call. Or it could be that a person or entity has to fulfill a loan obligation, and the creditor has the ability to liquidate and obtain the collateral to secure the loan, Geraci said.
Investors who are reluctant to own bitcoin but want some exposure in their portfolios generally favour bitcoin futures and spot ETFs. These funds have been hit hard recently as bitcoin prices have slumped. According to Arcane Crypto, there was a net outflow of 18,315 bitcoin ETPs as of June 21.
“This is the worst redemption we’ve seen to date in the relatively short history of bitcoin ETFs, shrinking the size of bitcoin under Purpose to a low since October 2021,” Lunde said.
“The recent bloodshed in the cryptocurrency market shows that there is no shortage of leverage in the system, and when prices go up, they work and when they go down, they go wrong,” Geraci said. He believes the issue has nothing to do with ETFs. “It boils down to the fact that overleveraged cryptocurrency traders forced liquidation of positions that may have triggered Bitcoin’s sell-off, rather than factors related to the structure of Bitcoin ETFs.”