Rising Middle East Tensions Trigger Massive Bitcoin ETF Outflows

The Fidelity Wise Origin Bitcoin Fund and ARK 21Shares Bitcoin ETF were hit hardest, while BlackRock’s iShares Bitcoin Trust recorded inflows. Ethereum ETFs also faced outflows, losing $48.6 million. Bitcoin’s price also dropped over 3% as investors looked for safer assets like gold and oil. On the other hand, CleanSpark’s CEO predicted that Bitcoin could reach $200,000 in 18 months, driven by election cycles, the halving from earlier in the year, and expected rate cuts from the Federal Reserve.

Bitcoin ETFs Face $243 Million Exodus

Institutional investors seem shaken by the escalating tensions in the Middle East, as US spot Bitcoin exchange-traded funds (ETFs) have been hit by major outflows. On Oct. 1, these ETFs experienced close to $243 million in outflows, which was their largest outlows in almost a month. According to data from Farside Investors, this outflow happened after an earlier, larger exodus of $288 million on Sept. 3. The recent outflow was also the third-largest in the past five months, and broke an eight-day streak of consecutive inflows for spot Bitcoin ETFs that peaked at $494 million on Sept. 27.

Bitcoin ETF flow (Source: Farside Investors)

Among the ETFs, the Fidelity Wise Origin Bitcoin Fund was hit the hardest as it lost $144.7 million, followed by the ARK 21Shares Bitcoin ETF, which saw outflows of $84.3 million. Other outflows included $32.7 million from the Bitwise Bitcoin ETF, $15.8 million from the VanEck Bitcoin ETF, and $5.9 million from the Grayscale Bitcoin Trust. 

In contrast, BlackRock’s iShares Bitcoin Trust was the sole fund to record positive flows, adding $40.8 million to its assets. This also contributed to its impressive 15-day streak of inflows.

Ethereum ETF flow (Source: Farside Investors)

Ethereum ETFs were not immune to the sell-off either, as the nine US spot Ether products saw $48.6 million in outflows. The Grayscale Ethereum Trust led the losses by shedding $26.6 million, followed closely by the Fidelity Ethereum Trust, which lost $25 million. These two funds accounted for the bulk of the day’s Ether ETF outflows.

Bitcoin Sinks While Gold and Oil Shines 

On the other hand, commodities like gold and crude oil surged as tensions in the Middle East intensified, while Bitcoin moved in the opposite direction. Naturally, this sparked a debate about its role as a safe-haven asset. 

Gold prices rose by 1.4% to reach $2,665 per ounce on Oct. 1, which was very close to a new all-time high. Crude oil spiked by 7%, hitting $72 per barrel. In response to Iran’s missile strike on Israel, bonds and the US dollar also climbed as investors looked for safety in traditional assets.

Investors selling BTC to buy gold (Source: X)

Li Xing, a financial markets strategist, shed some light on the growing appeal of gold amidst market uncertainty. Meanwhile, Bitcoin is often labeled as a safe-haven asset, yet saw a sharp decline of more than 3% in the last 24 hours. 

At press time, the crypto king was trading hands at $61,753.05, according to data from CoinMarketCap. Coinglass shows that 154,770 traders were liquidated over the past day as well, and total liquidations amounted to around $521 million.

This is not the first time Bitcoin fell due to Middle East tensions. In April, Bitcoin dropped by more than 8% after a drone attack by Iran on Israel. Now, the latest price drop reignited skepticism about Bitcoin’s status as a safe haven. In fact, Jeroen Blokland believes investors are selling Bitcoin to buy gold. Analyst Jesse Colombo agrees with this view, and argues that Bitcoin behaves more like a high-risk tech stock during geopolitical crises rather than a stable asset like gold.

Despite this, some experts are still optimistic that Bitcoin could evolve into a safe-haven asset. BlackRock CEO Larry Fink stated a while ago that Bitcoin could be an alternative inflation hedge. Markus Thielen, the head of research at 10x, added that while Bitcoin was originally designed as an electronic cash system, it is still maturing and has not yet transitioned into its role as a gold substitute. He believes Bitcoin’s price will keep being influenced by economic cycles until it fully matures into that potential role.

Bitcoin Mining Revenue Drops for Third Month

In September, Bitcoin’s average price and network hashrate saw slight increases, but daily mining revenue and gross profit continued to decline for the third consecutive month, according to a report from JPMorgan. The network’s hashrate rose by 2% from August to reach 643 exahashes per second (EH/s), which made it the third straight month of growth. The hashrate reflects the total computational power used for mining and processing transactions on the Bitcoin blockchain.

JPMorgan analysts estimated that miners earned an average of $42,100 per EH/s in daily block reward revenue, which is a 6% decrease from the previous month. Additionally, gross profit from daily block rewards fell by 6% month-over-month to $16,100 per EH/s, with a 38.4% gross margin—the lowest on recent record. Transaction fees also remained subdued, making up less than 5% of the block reward.

The total market cap of the 14 US-listed Bitcoin miners tracked by JPMorgan rose by 4% to $21 billion in September. Among the miners, Hut 8 posted the strongest performance with a 21% gain, while CleanSpark saw the largest decline of 13%. Bitcoin’s annualized volatility also decreased, dropping from 62% in August to 44% in September.

Bitcoin Could Hit $200K in 18 Months?

CleanSpark CEO Zach Bradford predicted that Bitcoin could peak at just under $200,000 in the next 18 months. In an interview with Bernstein analysts, Bradford suggested that Bitcoin could see a quick rise followed by an extended period of elevated prices before entering another bear cycle. He also believes that Bitcoin’s current flat period could indicate a longer-lasting upside, though macroeconomic factors could still influence this outlook.

Bradford specifically pointed out the historical trend of Bitcoin price increases after halving events and election cycles. He expects a big push in Bitcoin prices after the US presidential election in November, with the post-election period potentially bringing margin expansion for miners with efficient cost structures.

He also believes that the conclusion of the election, rather than the outcome, will reduce uncertainty, which could contribute to Bitcoin’s rise. Additionally, Bradford added that the Federal Reserve’s expected rate cuts over the next 15 to 16 months could also benefit Bitcoin.

In contrast to AI-diversifying Bitcoin miners, Bradford argued that Bitcoin-focused miners are undervalued, considering their lower capital expenditure costs and quicker returns on infrastructure investment. He explained that Bitcoin mining infrastructure delivers faster cash flows compared to the lengthy development cycles for AI data centers. CleanSpark’s strategy has been to sell Bitcoin near market peaks and hold during downturns. The company holds 97% of its mined Bitcoin since June of 2023, which amounts to almost 8,000 BTC.

Bradford also discussed CleanSpark’s focus on acquiring smaller mining sites at lower costs, scaling to 1GW power contracts across five US states. He believes the market undervalues CleanSpark’s ability to secure these cheaper sites and scale efficiently.

CleanSpark Inc stock price YTD (Source: Google)

Looking ahead, Bradford expects Bitcoin mining technology to evolve, with new-generation chips reaching efficiency levels of 11J/TH. He predicted that this shift will lead to changes in mining facility designs, moving from air cooling to immersion cooling to manage increased power and heat demands. Bradford also stated that while chip upgrades will continue to offer efficiency gains, the benefits will diminish as mining fleets reach 15J/TH, potentially driving down equipment costs due to increased competition.