Aug 7 2024: According to Citigroup strategists, Bitcoin has yet to fulfill its “digital gold” reputation. The firm highlighted that spot Ethereum ETFs are experiencing net outflows in their second week of trading, mirroring the initial challenges faced by Bitcoin ETFs. However, recent price movements for Ethereum have been more influenced by equity market trends rather than ETF flows, unlike Bitcoin.
Citi analysts observed that the recent correction in risky assets reinforces the limited diversification benefits of cryptocurrencies at present. They noted, “Crypto fundamentals are holding up overall, with stablecoins avoiding sharp outflows and hash rates increasing despite weaker price action.”
Citi further argued that Bitcoin has not yet achieved the “store of value” characteristics attributed to gold. They pointed out that while both gold and Bitcoin are finite resources and zero-coupon instruments, Bitcoin has not demonstrated gold’s protective qualities in recent market downturns. This observation supports the view that Bitcoin remains a risk asset rather than a safe haven.
Since the launch of spot Bitcoin ETFs on January 1, these funds have attracted $19.1 billion in net inflows, accounting for over 40% of the variance in weekly Bitcoin prices. In contrast, Ethereum ETFs have seen $460 million in net outflows during their first two weeks.
Citi emphasized the differing investor behaviors and market responses to Bitcoin and Ethereum, noting that the initial outflows from Ethereum ETFs are comparable to the post-launch decline experienced by Bitcoin ETFs between days 4 and 12.
Despite the recent crypto selloff, some fundamentals remain robust. Interest in cryptocurrencies is increasing, stablecoins have not experienced significant outflows, and while Ethereum network activity has slowed, Bitcoin’s activity has remained relatively stable, albeit at lower levels. The hash rate for Bitcoin has been volatile but has recently trended upwards, and decentralized exchange volumes continue to grow compared to those of centralized exchanges.
