Why Zero Flows for Spot Bitcoin ETFs Don’t Really Matter

Preliminary data from Farside Investors revealed that four of the new spot Bitcoin ETFs had another day of zero flows on April 16.

These were Bitwise (BITB), Invesco Galaxy (BTCO), WisdomTree (BTCW), and Hashdex (DEFI).

Additionally, Grayscale’s GBTC and ARK 21Shares’ ARKB had outflows of $79.4 million and $12.9 million respectively.

Nevertheless, Bloomberg ETF analyst James Seyffart said this was perfectly normal.

To all those people emailing us, saying we have a bug, because that many flows cannot be zero and its too much of a coincidence. See this thread from @JSeyff

Bitcoiners clearly do not understand ETFs, we are so early… https://t.co/aLhTiJX3IS

— Farside Investors (@FarsideUK) April 16, 2024

Why Zeros Don’t Matter

On April 16, Seyffart said that on any given day, the vast majority of ETFs will have a flow number of zero, adding that “this is very normal.”

He said that there are around 3,500 ETFs in the US, and on April 15, 2,903 of them had a flow of exactly zero. Moreover, nine of the newly launched eleven spot Bitcoin ETFs, including Fidelity (FBTC), had a flow of zero that day.

He explained that shares are produced or destroyed in creation units, which only happens when there is a mismatch in supply and demand.

“That mismatch has to be large enough to justify tapping the underlying market,” and a bigger mismatch than a creation unit, he added.

Moreover, creation units are the lots that ETF shares are created and redeemed in. Every ETF can have different-sized creation units. In the case of the spot Bitcoin ETFs, they are blocks of shares ranging from 5,000 to 50,000 shares, he said.

“A creation or redemption will only happen if there is a large enough mismatch in supply and demand AND the cost to make a market by doing that creation or redemption is lower than simply hedging and making markets the old fashioned way.”

Okay too many questions about #Bitcoin ETFs and zero flows — a few quick thoughts:

1. On any given day, the vast majority of ETFs will have a flow number of ZERO — this is very normal. There are ~3,500 ETFs in the US. Yesterday 2,903 of them had a flow of exactly zero

— James Seyffart (@JSeyff) April 16, 2024

Third Day of Outflows

Minor mismatches will see the market makers handle trading of shares just like they would a stock, Seyffart explained. However, “it needs to be lopsided and more than a creation unit in either direction for market makers to tap the underlying market,” he added.

Therefore, when these mismatches are large enough, there will be significant inflows or outflows of the underlying asset, and when they are too small, there will be zeros.

Nevertheless, April 16 was the third trading day in a row with an outflow as a net aggregate of $58 million left spot Bitcoin ETFs. This was due to a tiny inflow of $25.8 million for BlackRock (IBIT) and outflows from GBTC and ARKB.

The underlying asset, BTC, recovered marginally, briefly reclaiming $64,000 during the Wednesday Asian trading session, but slipped in the following hours.