ETF flows, not Strategy's sale, remain key bitcoin driver: Citi

Bitcoin's lack of fresh investors matters more than Strategy's sale, Citi says

Strategy's unloading of bitcoin may have rattled markets, but Citi said the bigger issue for BTC is a missing bid from new buyers.

Strategy's (MSTR) recent bitcoin BTC$66,881.93 sale has had an outsized impact on market sentiment, but Wall Street bank Citi does not see the move as changing the company's long-term strategy.

The bank said the sale was anticipated after Strategy signaled plans to dispose of certain tax-disadvantaged bitcoin holdings during its first-quarter earnings call as part of a portfolio optimization effort.

"Recent flows have been negative, and the chances for the passage of a U.S. market structure bill (a potential catalyst for renewed investor interest in our view) are diminishing," analyst Alex Saunders wrote in the Tuesday report.

Markets were rattled this week after Strategy disclosed the sale of a small portion of its bitcoin holdings, marking a rare departure from Executive Chairman Michael Saylor's long-standing "buy and hold" approach.

While the company said the transaction was tied to tax-planning considerations, the move sparked concerns that one of bitcoin's most influential corporate backers could become a seller, contributing to a bout of weakness in BTC and renewed scrutiny of the digital asset treasury model.

Saunders continues to view spot bitcoin exchange-traded fund (ETF) flows as the primary driver of BTC prices, estimating they account for about 45% of weekly return variation. The analyst said recent ETF flows have turned negative, highlighting a broader lack of investor demand for the cryptocurrency.

While digital asset treasury companies have emerged as important buyers of bitcoin, the analyst does not believe treasury-related selling is a major factor behind the recent weakness. Instead, the bank argued ETF flows remain the clearest high-frequency measure of investor adoption and appetite.

The report also warned that the chances of a U.S. crypto market structure bill passing this year appear to be declining, reducing the likelihood of a near-term catalyst for fresh investor inflows.

Combined with bitcoin's underperformance relative to equities, the fading legislative outlook is likely to keep sentiment muted absent regulatory progress or renewed concerns about fiscal sustainability, the report added.

The disclosure of Strategy's first bitcoin sale in years weighed on sentiment this week, fueling concerns about potential selling by digital asset treasury firms and pushing BTC lower. The world's largest cryptocurrency was trading around $67,200 at the time of publication.

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