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Bitcoin reserves drops by 50% due to record outflows from Canada’s largest Bitcoin fund

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  • On-chain data shows two sharp drops in a Canadian Bitcoin fund’s Bitcoin balances, but there’s a catch
  • Since June, 3iQ Corp, a Bitcoin firm established in Canada, has seen a substantial drop in its BTC reserves
  • Despite popular narratives portraying Bitcoin as the ultimate hedge against growing consumer prices, the bias conflict develops

Since June, the BTC reserves of 3iQ Corp, a Bitcoin fund established in Canada, have dropped dramatically. The closed-end investment instrument, dubbed the Bitcoin Fund, was holding roughly 24,000 BTC in its vaults in early June. As the monthly session progressed, however, the reserves first fell below 16,000 BTC in a stunning, straight-line slide. According to on-chain statistics from South Korean analytics firm CryptoQuant, another large withdrawal brought the Bitcoin Fund’s BTC reserves to roughly 13,000 BTC. Withdrawals from the QBTC fund, on the other hand, corresponded with a surge in inflows into 3iQ’s exchange-traded fund (ETF), the 3iQ CoinShares Bitcoin ETF (BTCQ). In June 2021, the Canadian ETF received inflows of 2,088 BTC, compared to outflows of 10,432 BTC in the same month for QBTC.

A lower level of Bitcoin exposure

In contrast, 3iQ’s main competitor, the New York-based Grayscale Bitcoin Trust (GBTC), saw no decrease in its BTC reserves. GBTC has been closed by Grayscale Investments since February for administrative purposes. There are no redemptions or withdrawals allowed in a closed-end fund. Furthermore, according to data compiled by ByteTree Asset Management, the 90-day inflow into Bitcoin funds located in the United States and Canada has decreased to 12,794 BTC, down 93.3 percent from 191,846 BTC in January 2021.

Despite garnering 2,088 BTC in June 2021, the 3iQ CoinShares Bitcoin ETF (BTCQ) has seen outflows of 354 BTC in July 2021. The fund’s reserves reflect institutions’ increasing and declining interest in Bitcoin. This is due to the fact that these investment products usually perform and allow accredited investors to acquire indirect exposure to the crypto markets by issuing shares backed by actual Bitcoin held in vaults.

The Federal Reserve’s perspective

The Federal Reserve’s hawkish signals at the end of June’s Federal Open Market Committee meeting coincided with institutional investors lowering their exposure to Bitcoin funds.

In more detail, the Federal Reserve of the United States announced in mid-June that it may raise interest rates by the end of 2023 to combat current inflationary pressures. It was referring to the US consumer price index (CPI), a measure of inflation, which increased by 0.6 percent in May 2021 to a three-decade high of 4.5 percent; CPI increased by 0.9 percent in June to 5.4 percent, the fastest rate in the last 13 years.

Bitcoin has fallen below $32,000 since the Fed’s forecast. However, the flagship cryptocurrency has largely remained within the $30,000-34,000 price range, indicating that retail and institutional investors are divided on the coin’s next directional leaning. Despite popular narratives portraying Bitcoin as the ultimate hedge against growing consumer prices, the bias conflict develops. The storey goes like this: Unlike the US dollar or other fiat currencies, Bitcoin has a finite number of 21 million tokens, making it scarcer than inflationary currencies and, as a result, more valuable over time.

However, in recent months, Bitcoin has reacted badly to growing inflation, prompting opponents to doubt Bitcoin’s safe-haven storey, at least in the short term. For example, Fortune published a special segment on Bitcoin’s irregular reaction to rising consumer prices, claiming that the cryptocurrency is now following its own drummer.

Bitcoin had become an overrated asset, according to Eric Diton, president and managing director of The Wealth Alliance, after soaring from below $4,000 to a record $65,000 in less than a year. However, given the cryptocurrency’s progress, its prices must adjust before continuing upward. Long Bitcoin, along with long ESG and long commodities, was revealed to be among the most crowded trades in a Bank of America poll of fund managers.

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