Latest developments: ETF investors were more resilient than many expected during Bitcoin’s latest decline. In an interview with CoinDesk Market Outlook, Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, highlighted several key data points demonstrating this stability:
- Bitcoin has fallen more than 40% from its recent highs, a move that has historically unnerved the retail-heavy cryptocurrency market.
- During the same period, only 6.6% of Bitcoin ETF assets exited.
- “For now, the ETF boomers have really turned the corner,” he said.
Why ETF holders hold: Balchunas believes that ETF investors are structurally different from native cryptocurrency traders.
- Many ETF buyers view Bitcoin as a 1%-2% “hot sauce” allocation alongside stocks and bonds, rather than a core holding.
- Their broader portfolios benefited from strong stock markets, cushioning the psychological blow of cryptocurrency losses.
- ETF investors “tend to hold very strong stocks” because they have weathered multiple market cycles in traditional assets, Balchunas said.
Comparison with cryptocurrency natives: The same price drop can feel very different depending on the exposure.
- Investors who are highly concentrated in Bitcoin face what Balciunas calls “existential crisis mode.”
- Leveraged traders and long-term holders may experience greater selling pressure than ETF investors.
- “Volatility is the cost of return,” Balciunas said, noting that Bitcoin has experienced seven or eight similar declines in its history.
Lessons from gold ETFs: Balchunas sees similarities between Bitcoin and gold as assets wrapped in ETFs.
- About a decade ago, gold ETFs fell about 40% in six months, with about a third of the assets sold off during that period.
- Nonetheless, gold ETFs have since rebuilt their assets and now hold about $160 billion.
- Before the recent sell-off, Bitcoin ETFs once rivaled gold ETFs in size, highlighting how flows can reverse over time.
What happens next: Volatility may persist, but ETFs could solidify Bitcoin’s place in traditional finance.
- Balchunas said that Bitcoin’s 17-year history shows that after experiencing severe downturns, Bitcoin continues to recover and reach new highs.
- The ETF structure means Bitcoin is now part of mainstream investment portfolios alongside stocks, bonds and commodities.
- “The sell-off doesn’t mean it’s over,” he said. “It just means it’s a sell-off.”