First Mover Asia: Spot Bitcoin ETFs Are Launching in Australia but Elsewhere They Face Brutal Fund Outflows

After a promising start to the week, bitcoin swooned on Tuesday, recently dropping about 4.5% over the past 24 hours as investors continued their recent risk-off posture amid the same macroeconomic uncertainty that has been plaguing the world throughout the year.

Just a day after bitcoin soared past $40,500 on news of financial giant Fidelity's decision to allow consumers to invest in bitcoin in their 401(k) retirement savings accounts, the largest cryptocurrency by market capitalization was trading just over $38,000, its lowest mark since early March. 

Ether, the second-largest crypto by market cap, was changing hands at about $2,820, off roughly 5.7%, following a day when it pushed past $3,000.

Other major altcoins by market cap were in the red, many of them significantly so. Terra's LUNA token and ADA were both recently down over 7%. Popular meme coin DOGE fell more than 9%.

Analysts have been cautious in predicting cryptos' trend in the coming weeks as bitcoin has wrestled with the $40,000 threshold with one analyst writing in a report that secondary support could form "near $27,200."

Crypto declines tracked equity markets, which tumbled as Wall Street digested an inauspicious beginning to the earnings season, fiscal tightening by the U.S. central bank, discouraging economic data and signs that Russia would escalate its attacks on neighboring Ukraine. The tech-focused Nasdaq declined a whopping 3.9%, while the S&P 500 fell 2.8%.

On Tuesday, Google parent Alphabet (GOOG) said its first-quarter profit had dropped 8%, and in a report, Deutsche Bank (DB) predicted "a major recession," revising its forecast of earlier this month for a milder downturn. 

The latest economic news came as Russia cut off natural gas supplies to Poland, which has been fearful that it could be a target of Russian aggression. Separately, Russia accused Western countries supportive of Ukraine of conducting a proxy war.

"Bitcoin reversed lower as risk aversion returned to Wall Street, with tech stocks leading the decline," Oanda Americas Senior Market Analyst Edward Moya wrote in an email, noting Russia's decision on Poland gas exports. Moya added: "Ethereum also turned negative and will continue to follow what happens on Wall Street."

Australia is going to have its own bitcoin exchange-traded funds (ETF) in the near future, despite some delays because of problems with the plumbing that delayed Wednesday’s (April 27) scheduled launch.

Australia follows a long list of bitcoin ETF issuances in Canada and Europe. There’s still no spot bitcoin ETF in the U.S., but traders in Toronto, Europe and South America are able to trade frequently and in sizable volumes if they choose.

But as the Australian ETF prepares to launch it faces a market with compressed premiums and fast outflows. One of Australia’s "priciest funds" is listing just over a year after the first bitcoin ETFs hit the market in Toronto.

In the eyes of traders, these ETFs replaced the Grayscale Bitcoin Fund (GBTC) as a way to hold crypto in registered or institutional accounts. The premium on GBTC flipped negative and has stayed deeply in that territory ever since – now at -23%. (Grayscale is a CoinDesk sister company.)

The U.S. still doesn’t have a spot bitcoin ETF. But other nations quickly listed their own, and the vehicle became popular at exchanges in Europe and South America. As U.S.-based investors are familiar with the Canadian market they flocked northward, including ARK Investment.

While ETF issuers were once secretly cheerful of GBTC’s fate that cheer might have been glib as on the eve of the listing of the first Australian bitcoin ETF data shows major outflows from crypto ETFs and premium compressions.

The 3iQ Coinshares bitcoin ETF is now trading at a -2.7% discount. This isn’t GBTC-level bad because the ETF is known to gyrate between premiums and discounts. 

During the 2021 summer rebound after the spring crash (where it hit a low of 5%), for instance, the ETF traded at a premium of 5.7%, occasionally rebounding to highs of 2.5%-2.7% throughout the year as the price oscillated upwards.

What will happen to Australia’s bitcoin ETF from Cosmos? Given that it's launching in a market with a net outflow from bitcoin ETFs as well as exchanges as traders look to HODL, it’s unlikely that the premium will last.

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