Bitcoin Funds Trade at Discount as Demand Drops

Bitcoin fund market premiums have gone negative, indicating changing investor sentiment as demand for Bitcoin exposure through funds recedes.

Data from CryptoQuant shows that the 7-day EMA of Bitcoin fund premiums has sunk below the zero line, suggesting these products have gone to a discount to the NAV. The presence of a negative premium implies that investors have become less receptive to investing in Bitcoin funds due to bearish sentiment.

This trend follows a recent report from Farside, which revealed that spot Bitcoin exchange traded funds (ETFs) had netted outflows of $93.2 million on March 28 after ten days of net inflows in a row. This reversal shows cooling investor enthusiasm of late.

Declining Sentiment and Bitcoin Fund Demand

The prior insights have already pointed out dwindling investor sentiment and dropping demand of Bitcoin funds exposure. This continued selling pressure causes prices to fall below the NAV and the continuous outflows contribute to the negative premiums.

This shift also involves changes in the market structure. As the later stage use of spot Bitcoin ETFs has grown, and the arbitrage opportunities with them have shrunk, the fund premiums have compressed and the fund prices have stayed close to the underlying values. These days, even some funds dip below NAV during periods of heightened selling pressure as market dynamics change drastically.

Historically, high fund premiums have been driven by retail investors’ interest. In contrast, institutional investors are more price-sensitive and less speculation-sensitive, tending to have lower or negative premiums. This changing investors’ composition is also eroding the fund premiums.

This brings into question how and if the demand for Bitcoin funds on the market will survive the current trend. Negative premiums could be a persistent trait of the Bitcoin fund landscape if outflows persists and market sentiment remains low. Market and investors will pay close attention to whether demand stabilizes or exacerbates the discount between fund prices and NAV.