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Are ETFs To Blame For The Crypto Crash?
How could these funds amplify risk in an already risky digital coin market? By Ron DeLegge
MARKET MELTDOWNS INEVITABLY LEAD TO finger-pointing. What triggered the collapse? Why is it happening? Who’ s to blame? With bitcoin prices in a sharp downswing, people want answers. A Wall Street Journal piece found that even the most vocal champions of cryptocurrencies didn’ t have the answers— whether it was longtime hedge fund trader Michael Novogratz, who runs Galaxy Digital, or crypto permabulls like Anthony Pompliano. But some have tried to blame bitcoin exchangetraded funds for the market instability.
What are their arguments? Let’ s look at some to see if they hold up.
Spot Bitcoin ETFs
Cryptocurrency ETFs held roughly $ 135 billion at the end of January. It’ s an impressive figure, but still small next to bitcoin’ s $ 1.3 trillion market cap. Most of those ETFs are focused on just one digital asset, bitcoin, so let’ s look at those.
In a recent X post, Graham Stephan, a social media influencer, criticized bitcoin ETFs for“ flooding the market with renters,” saying the funds encourage short-term thinking. But it could be counterargued that ETFs don’ t encourage a short-term mentality any more than fire stokes pyromaniacs. The broad bitcoin market was already volatile. How would ETFs amplify that?
Spot bitcoin ETFs simply make it easier for retail and institutions to buy the coin through traditional brokerage accounts. So
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