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Projected Supply Absorption of Spot ETFs Turns Negative

Since their introduction on January 11th, the landscape of new spot Bitcoin ETFs has undergone remarkable expansion. These new ETFs have amassed flows totaling $12.04 billion this spring and currently hold 831,500 Bitcoins, constituting a 4.23 percent share of Bitcoin’s overall supply.

While ETF inflows exhibited strength from January to March, recent trends suggest a momentary decline in interest. A closer examination of spot Bitcoin ETF metrics reveals a shift towards negative supply absorption.

The annualized supply absorption of spot ETFs now stands at -0.38 percent, indicating that these funds are failing to absorb any of the new Bitcoin supply. Despite anticipation surrounding the upcoming halving in 21 days, Bitcoin’s spot price has shown limited movement over the past 30 days. The negative supply absorption of ETFs may partly explain this stagnation.

When spot ETFs are unable to absorb new supply from miners, demand for the approximately 900 Bitcoins issued daily must originate from alternative sources. While retail investors have displayed increasing interest in Bitcoin, their attention may be diverted towards new Solana-based tokens and “meme coins.”

However, the significance of supply absorption is likely to diminish as the scheduled halving approaches. The halving event reduces Bitcoin’s block reward from the current 6.25 to 3.125, thereby enhancing the asset’s scarcity.

Historically, halving events have influenced Bitcoin’s spot price trajectory. Following the 2020 halving, Bitcoin embarked on a parabolic growth trajectory, surging by 654 percent to reach an all-time high the following year.

Although the negative supply absorption observed in spot Bitcoin ETFs presents a short-term challenge, the broader outlook remains promising. In a multi-year timeframe, Bitcoin may strive to achieve market capitalization parity with gold, representing a potential 1000 percent upside to the current spot price.

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