Overview of Institutional Bitcoin ETFs

*** One week in *** It has been one week since spot bitcoin ETFs began trading (on January 11, 2024) during which we have seen more than $14B of spot trading volume in aggregate – an order of magnitude greater than all other ETFs launched in 2023. Volumes appear to be stabilizing after a week of trading at around $2B per day, and account for a significant 15% of global spot BTC volume. Together, the spot ETFs have seen a net inflow of $1.2B since inception (as of January 18), and we expect this number to continue rising over the medium term as more advisors and brokerages enable client access. Not all of these early inflows are new entrants to the space, however. Some investors have rotated into spot ETFs from less efficient bitcoin vehicles, and capital may have also rotated away from bitcoin holding and mining companies into spot exposure instead. For example, BITO (ProShares Bitcoin Futures ETF) has seen more than $180M in outflows since the spot ETFs launch. Still, we continue to believe the spot ETF is a critical unlock that could set the foundation for new derivatives markets in the traditional financial world, although it’s still as of yet unclear whether these will be subject to regulatory approval. Several filings for leveraged ETFs and options trading are already underway. While spot ETF volumes remain strong, BITO volumes have dropped sharply. On launch day (January 11), BITO traded $2B in value and surpassed its previous record by more than 50%. Since then, BITO volumes have dropped about 75%, trading $503M in volume on Thursday (January 18). Despite this drop, we view BITO as a continued integral part of the bitcoin ETF space. In fact, we suspect that some authorized participants (who have contractual agreements with the ETF issuers to create and redeem shares) potentially bought bitcoin in anticipation of the ETF launch and sold BITO (i.e. trading the basis) to hedge potential client buys and sells intraday which would be required because these are cash (rather than in-kind) creations for these ETFs. Indeed, following the launch of the spot ETF, the basis between CME futures and spot has compressed to less than 0.5% dropping its premium tenfold from its recent peak at the start of 2024. That may explain some of the activity described above. Regardless, we believe some APs (namely broker-dealers) will continue to rely on regulated means of hedging themselves, such as long CME futures or long BITO when creating shares (or short CME futures if redeeming). See our full report for more details.

According to J.P. Morgan analysts, Fidelity Investments and BlackRock spot Bitcoin ETF’s are ahead in two key areas that measure liquidity: 🔸The first metric is JPMorgan's proxy for market breadth, based on the Hui-Heubel ratio. This metric is lower for BlackRock and Fidelity ETFs by around four times, implying that these two ETFs show significantly more market breadth than GBTC, JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report on Wednesday. 🔸The second metric is based on measuring how much ETF closing prices deviate from their net asset value on average. This metric suggests that the ETF price deviation from the NAVs of the Fidelity and BlackRock spot bitcoin ETFs approached that of the SPDR Gold Shares ETF in the most recent week, implying a significant improvement in liquidity, the analysts said. Meanwhile, the deviations for the GBTC ETF have remained higher, indicating lower liquidity. #BTC #Bitcoin #ETF #crypto #invest https://lnkd.in/eqJ7sW25

Spot Bitcoin ETFs have dramatically outpaced miner output, absorbing 10 times the BTC produced on February 12th alone. Over $493.4 million flowed into ETFs, significantly led by BlackRock’s iShares and Fidelity’s Wise Origin Bitcoin Fund, with Ark 21Shares also seeing substantial inflows. This trend showcases a soaring institutional demand for Bitcoin, with ETFs absorbing a staggering amount compared to the $51 million worth of BTC mined that day. Anthony Pompliano highlighted on CNBC’s Squawk Box that Wall Street's demand for Bitcoin far exceeds daily production, emphasizing the asset's tightening supply. With 80% of Bitcoin's total supply stagnant over the last six months and only $200 billion considered tradable, these ETFs have captured 5% of Bitcoin's tradable supply in just 30 days. This scenario suggests a significant shift in Bitcoin’s market dynamics, hinting at potential impacts on supply, demand, and price volatility. As ETFs continue to draw in Bitcoin at such a rapid rate, the cryptocurrency market is poised for evolving investment patterns and valuation considerations. I'm curious to see the impact on the market and will be watching closely... 👀 #bitcoin #etfs #cryptocurrencymarket #investmenttrends