More 'forced selling' ahead? Purpose Bitcoin ETF holdings plunge by 51% in biggest outflow ever

Published at: June 20, 2022

Canada's Purpose Bitcoin ETF (BTCC) witnessed its Bitcoin (BTC) holdings slashed by half in just one day, suggesting an alarmingly waning buying sentiment among the crypto's most-experienced investors.

Purpose Bitcoin ETF has 51% of AUM slashed

The fund's holdings dropped from $47,818 BTC to 23,307 BTC between June 16 and 17, its lowest level since October 2021. The 51% drop in BTC holding is also the biggest daily outflow ever.

Interestingly, another Canadian crypto fund, dubbed 3iQ CoinShares Bitcoin ETF, witnessed similar outflows, dropping from 23,917 BTC on June 1 to 12,668 BTC on June 17, suggesting the Purpose's massive BTC withdrawal was not an isolated event.

More "forced selling" of Bitcoin ahead?

The outflows came at the cusp of Bitcoin's brief break below $20,000, a psychological support level that served as the top during the 2017 bull run. Notably, BTC's price fell to circa $17,570 on June 20, only to reclaim $21,000 two days later.

Nonetheless, the funds' giant Bitcoin puke left behind evidence of record-high redemption rates by their institutional clients, supposedly invoked by fears that BTC would resume its bear run below $20,000 in 2022.

"I'm not sure how they execute redemptions, but that's a lot of physical BTC to sell in a small time frame," noted Arthur Hayes, the former CEO of BitMEX crypto exchange, adding:

"Given the poor state of risk mgmt by #cryptocurrency lenders and over-generous lending terms, expect more pockets of forced selling of $BTC and $ETH as the mrkt figures out who is swimming naked."

Breaking below $20K is "easier" now

The Bitcoin ETF outflows are related to waning buying sentiment in riskier assets, led by the Federal Reserve's ultra-hawkish stance against rising inflation.

Notably, Bitcoin has fallen by more than 70% from its record high of $69,000 in November 2021, mainly plagued by the Fed's benchmark rate hikes and systematic and complete unwinding of a $9 trillion balance sheet.

The U.S. central bank slashed rates by 75 basis points on June 15, its highest since 1994. Meanwhile, its "dot plot" reveals aims to push the lending rates to 3.4% by the end of 2022 versus the current 1.5–1.75% range.

That would mean more hikes into the year, which, in turn, could hurt risk appetite further, limiting Bitcoin's, as well as the stock market's, recovery potential.

"The biggest issue I see as for now is a global recession, which is just around the corner," Paweł Łaskarzewski, co-CEO at decentralized finance (DeFi) launchpad platform Synapse Network, said, adding:

"Because of this, retail and institutions are too scared and don't have the same capital firepower they had a year ago. So due to the shallower market, it's much easier to break the $20K line as there might not be enough capital to take it back."

BTC levels to watch out for

Bitcoin's likelihood of retesting $17,000–$18,000 as support will be all but guaranteed if BTC price breaks below $20,000 again.

Meanwhile, continued selling could have BTC fall to $14,000, the May 2019 top. Interesingly, Bitcoin's Volume Profile Visible Range (VSVR) further indicates the $8,000–$10,000 range as the most dominant based on trading activity.

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