Bitcoin’s market dynamics are shifting as Bitcoin spot Exchange-Traded Funds (ETFs) witness substantial inflows, accumulating over $7.4 billion in the past 50 days. This influx is directly affecting the availability of Bitcoin on over-the-counter (OTC) desks, with blockchain data indicating a rapid decline in OTC Bitcoin supply since December. Caitlin Long, CEO of Custodia Bank, noted the scarcity of Bitcoin for sale on major OTC desks during a recent trip to New York City, suggesting this as a key factor behind Bitcoin’s price surge to over $62,000 per coin after a significant rally in February.
OTC Bitcoin supply challenges
Bitcoin ETFs involve market makers purchasing Bitcoin OTC from large holders to mitigate market slippage. However, this strategy leads to a temporary supply shortage on OTC desks when ETF demand exceeds the available supply, pushing market makers to source Bitcoin from public exchanges. This process has contributed to the recent price increases, with instances where as little as 40 BTC were available for sale on OTC desks at any price point.
Despite the apparent supply constraints on OTC desks, some analysts, including Reflexivity Research co-founder Will Clemente, question the accuracy of on-chain data tracking OTC Bitcoin supply. Clemente suggests that claims of OTC desks running out of Bitcoin are exaggerated, highlighting the complexity of accurately monitoring such transactions.
The recent surge in Bitcoin’s price correlates with significant inflows into Bitcoin ETFs, particularly between February 26 and 28, where daily inflows exceeded $500 million, coinciding with Bitcoin’s price jump from $52,000 to $64,000. Despite a stabilization in price and a reduction in ETF inflows thereafter, the relationship between Bitcoin ETF activity and market prices remains a topic of interest within the cryptocurrency community.
