Bitcoin spot funds face the most severe test as Citigroup's quantitative model reveals hidden links between capital outflows and price declines

Entering the second half of 2024, US-listed spot Bitcoin ETFs are experiencing unprecedented capital outflows. According to Bloomberg data, these funds saw a net outflow of $3.5 billion in November, nearly matching the $3.6 billion monthly outflow record set in February, making it one of the most challenging months since the product launch.

Leading funds, headed by BlackRock’s IBIT, are hit hardest—this product, which controls about 60% of the market, recorded $2.2 billion in redemptions in November alone. If the current trend continues, November will become IBIT’s worst single-month period since its inception.

The Precise Relationship Between Capital Withdrawals and Bitcoin Price Movements

What is most alarming to the market is that this wave of capital outflows is perfectly synchronized with Bitcoin’s own price trend. Currently, BTC is facing its worst monthly decline since the 2022 industry crisis (including the FTX collapse and subsequent chain bankruptcies). Once positive policy signals now seem powerless, and the overall scale of crypto assets is rapidly shrinking.

Nick Ruck, Executive Director of LVRG Research, commented on this phenomenon, stating that the redemption wave in IBIT reflects that “the market enthusiasm accumulated earlier this year has been thoroughly exhausted,” indicating a clear reversal in market sentiment.

Citi Research’s quantitative analysis provides a noteworthy correlation: Every $1 billion of capital flowing out of Bitcoin ETFs correlates with approximately a 3.4% decline in Bitcoin price. This positive correlation mechanism also works in reverse—when capital flows in, prices tend to rise accordingly.

Citi analyst Alex Saunders pointed out that this self-reinforcing feedback loop helps explain Bitcoin’s recent pullback. His recent end-of-year pessimistic scenario (without assuming new capital inflows) targets a price of $82,000. Given that billions of dollars have already been withdrawn from funds, Bitcoin faces further downside risk.

Weak Signals After Record Trading Volumes

Last Friday, Bitcoin ETF daily trading volume hit a record $11.5 billion, with IBIT contributing $8 billion, yet the day still saw a net outflow of $122 million. The underlying message behind this data warrants reflection—despite record-high trading activity, it cannot hide the actual redemption behavior of institutional investors.

Nick Ruck further interpreted that the continued net redemption of IBIT indicates a clear sign that “large institutional investors are shifting from leading crypto assets to other asset classes,” signaling a substantial weakening of institutional confidence, rather than just superficial trading enthusiasm.

Broader Pressure on High-Risk Assets

It is worth noting that this sell-off wave is not exclusive to Bitcoin. High-risk trading instruments in financial markets have faced broad pressure in the second half of the year, including AI-related stocks, meme stocks, and various high-momentum speculative positions, all declining simultaneously. The S&P 500 index is also expected to record its worst monthly performance since March.

The short-term correlation between Bitcoin and tech stocks has reached a historic high in early November, reflecting the collective fragility of the entire risk asset category.

Raphael Thuin, Head of Capital Markets Strategy at Tikehau Capital, believes that the market narrative around overvalued technology and AI valuations has extended into more speculative areas, including robotics, quantum computing, and digital assets. “In this context, the scale of capital flowing into Bitcoin funds has become a key indicator of overall market risk appetite changes.”

He further added that “the market is in a consolidation phase, prompting investors to recalibrate their positions, which may further increase market volatility and cause additional losses for some investors.” Currently, BTC is trading around $91,820, and the market is awaiting the next clear signal.