The other day on Twitter, I stated that Bitcoin BTC -2.030% ETF flows are currently the primary force shaping the market's trajectory.

However, upon further reflection and musings with some of my favorite market commentators, I believe I need to adjust this contention.

ETF flows are indeed significant. As investors flocked to funds tracking the price of the leading cryptocurrency, we observed a steady increase in prices. Conversely, when these inflows shifted to outflows, we witnessed a swift decline in token prices. Specifically, on March 18, interest in spot ETFs diminished, resulting in over $150 million in outflows. This trend persisted over the next two days, with outflows exceeding half a billion dollars. Consequently, between March 17 and March 19, Bitcoin's value dropped by more than 9%. At the flip of a dime Crypto Twitter shifted bearish and salty. 

Yesterday (March 20) experienced a significant increase in Bitcoin's price, despite $260 million in outflows. During Wednesday's trading session, the price of Bitcoin surged as much as 11%. This boost can largely be attributed to the Federal Reserve's announcement, suggesting the possibility of three rate cuts this year. This news not only propelled Bitcoin higher but also elevated US stocks. A more relaxed monetary policy is clearly beneficial for risk assets like cryptocurrencies, but it now appears to play a more crucial role in the narrative surrounding crypto than ETF flows.

Overestimating the impact of the bitcoin ETF flows

Essentially, negative flows and adverse macroeconomic news result in poor price performance. However, positive macroeconomic news can offset negative flows, at least for the time being.
So, watch the flows yes. But maybe don't pay *too* much attention to them in the short term. At least that's the view of our friend Teddy Fusaro at Bitwise. 

"People overestimate the impact of spot bitcoin ETF flows on the overall crypto market on a short term basis," Fusaro noted in a message to this columnist. "The recent average daily broader crypto spot trading volume across all crypto exchanges is close to $100 billion.  Meanwhile, spot bitcoin ETFs had a $262 million net OUT flow yesterday while the market rallied.  Spot bitcoin ETF flows are important, but they are just one part of a much larger, dynamic marketplace."

Of course, it's difficult not to check the flows. Just as it is difficult for me not to check my Coinbase account. And for degens to avoid checking the chain. But it appears that market participants are becoming more comfortable with negative flows in the short term as part of bitcoin's narrative, according to GSR's Brian Rudick. 

"I'm a little surprised BTC is bucking a third day of spot ETF outflows, but it does feel like more folks are watching the flows numbers as they come in and are more appreciative / expect there will be greater volatility of the flows, likely diminishing their impact on price somewhat," he said. 

"I know its due to macro too, but I'm actually more confused about ETH performing so well in light of the SEC allegedly looking to name it a security, and just posted a two tweet analysis on why I'm confused and what it may mean here."

So watch the flows, yes. But do so with a bit of caution. 

This first appeared in Chaparro’s biweekly The Scoop Newsletter on March 21. Sign up now.