This article elaborates on four themes.
How has the ETF performed since its launch? What does the future hold?
Bitcoin ETF VS Ethereum ETF
Sources of buyers for spot ETFs
The inflows and outflows of the ETF market have become new market indicators.
"The launch of the ETF may be siphoning off secondary liquidity from the market."
"The launch of the ETF has deepened the correlation between Bitcoin and the US stock index, making BTC less special from the perspective of traditional capital markets."
Main text👇🏻
1. How has the ETF performed since its launch? What does the future hold?
In the year following the launch of the spot BTC ETF, its scale reached approximately $63 billion, with its BTC holdings accounting for about 4.5% of the total. If we include the holdings of BTC ETFs in other regions, its share accounts for approximately 5.2% of the total.
(1) BlackRock occupies the largest share in this field, at over 40%;
(2) And even though Grayscale continues to experience net outflows, GBTC still holds the second market share.
(3) If we add Fidelity, which holds the third share, the combined market share of the three accounts for about 84%.
Since the launch of the ETF, BTC has been positively flowing for most of the time (60%). Driven by this trend, it can be seen that the launch of Bitcoin spot ETFs has further pushed the phenomenon of BTC demand exceeding supply, especially since this year has also experienced the Bitcoin halving event, exacerbating this supply-demand imbalance.
As of October 22, according to Glassnode data, the existence of spot ETFs brings an average daily demand of 1,100 $BTC to the market.
Comparing this data with the situation after the launch of gold ETFs: the flow of BTC ETFs has already surpassed the early performance of the first gold ETF launched in November 2004. Today, the market size of gold ETFs is about $131 billion, while the US spot BTC ETF market has reached about $63.3 billion.
In addition, the initial gold ETF application included only 95 institutional investors, which is in stark contrast to the more than 1,200 institutional investors currently investing in spot BTC ETFs. While this is influenced by different factors such as the capital market environment and the speed of internet dissemination, it also indirectly reflects the institutional consensus on BTC.
The outflow rate of Grayscale is slowing down; the early inflow and outflow of Grayscale have, to some extent, formed a hedge, as it has been over half a year since ETFs have been available, and the market's positive sentiment towards ETFs is gradually stabilizing. Considering both outflows and inflows, it is expected that the BTC inflow curve will steadily rise in the future.
2. Bitcoin ETF VS Ethereum ETF🔻
The overall performance of Ethereum ETFs is significantly weaker than that of Bitcoin ETFs, with only 30% of the time being positive inflow since their launch, indicating a consistent downward trend.
Grayscale remains one of the main reasons for this phenomenon, combined with the timing of the Ethereum ETF launch coinciding with the downward phase of the secondary market, which further suppresses the inflow of Ethereum.
When comparing the market impact of BTC and ETH ETFs, the normalized net flow of ETFs by spot trading volume indicates that the impact of BTC ETFs on Bitcoin is significantly greater than the impact of ETH ETFs on Ethereum.
As shown in the figure, the inflows and outflows of BTC ETFs fluctuate around approximately ±8% of Bitcoin's spot trading volume, while ETH ETFs only account for about ±1% of Ethereum's spot trading volume. This indicates that market demand/attention for BTC ETFs is significantly higher than for ETH ETFs.
3. Sources of buyers for spot ETFs🔻
Analyzing the distribution of ETF buyers is crucial for understanding the demand for spot BTC ETFs. The latest holding report data submitted in the second quarter indicates that non-institutional investors account for a significant portion of the total assets under management in spot BTC ETFs.
BlackRock further confirmed this point and noted that about 80% of BTC ETF purchases may be made by individual investors through online accounts.
Although this phenomenon is very good, not all the funds flowing into these ETFs reflect a new influx of money into the crypto space. On the contrary, this buying behavior might indicate that retail investors are turning to spot BTC ETFs from exchanges or on-chain transactions in the crypto industry itself, as the latter offers more convenience and regulatory protection.
📍The conclusion is: this means that the new ETF funds flowing in may be liquidity that already exists in the market.
This indicates that spot ETFs are playing a dual role: not only attracting new investors but also appealing to existing investors who prefer the regulated structure of ETFs rather than other more complex options, such as holding directly on-chain or low liquidity, high-fee alternatives like Grayscale's Bitcoin Trust.
From my personal perspective, this also indirectly reflects a possibility: the launch of these spot ETFs is siphoning liquidity that originally belonged to the market. If BTC is purchased on an exchange, these individuals may shift to other altcoins in the short term. However, if they choose to purchase BTC ETFs through platforms like brokerages, their funds are more likely to be locked in on these platforms rather than flowing to on-chain or other areas within the industry.
A relatively optimistic signal is that although the current buying pattern indicates slow growth in institutional demand, the overall trend remains upward. In the second quarter's public filing data, the number of institutional investors in BTC ETFs increased from over 900 to more than 1,200, highlighting that institutional interest in BTC is expanding. Even during price declines, professional investors continue to increase their BTC positions, reflecting the confidence of traditional financial market institutions in BTC as an asset.
The following figure shows the distribution of holdings of various types of institutions in Bitcoin spot ETFs.
Currently, the main participants in the Bitcoin ETF market are classified as [Investment Advisors], and the chart lacks some detailed aspects.
(1) In the 'Others' section, new participants include some large banking institutions and pension funds.
(2) Morgan Stanley, as a new entrant, has only recently begun offering Bitcoin spot ETFs to clients meeting specific wealth and risk tolerance requirements. Limited by this, its market share is relatively small.
However, as more institutions open up to public subscriptions, external market demand for Bitcoin in ETFs will further expand, but at the same time, considering my previous point, the liquidity of the original crypto secondary market may also be further siphoned off.
📍ETFs are undoubtedly a double-edged sword, and this sword may ultimately be aimed at the necks of on-chain altcoins.
4. The inflows and outflows of the ETF market have become new market indicators🔻
The inflows and outflows of ETFs have become a key market indicator in the crypto market, showcasing a bidirectional supply and demand relationship where changes in one direction often reflect or drive changes in the other direction.
The inflows and outflows of these ETFs are usually related to price trends, and their impact on price discovery is significant because they reduce the available supply and can significantly influence market trends due to their large presence.
Currently, among the two Chinese macro KOLs in the crypto market that I follow, I often see their analysis on the inflow and outflow of ETFs.
The launch of Bitcoin spot ETFs brings a significant impact not only within the crypto industry itself; there are views in the market suggesting that the launch of ETFs further increases the correlation between Bitcoin and the US stock market, which may lead to Bitcoin ultimately losing its effectiveness as a hedging tool and a diversification asset.
Simply put, if the two are negatively correlated, Bitcoin has strong hedging properties. However, if your Bitcoin follows the S&P, then from a trading perspective, Bitcoin is losing its uniqueness as an asset class in traditional capital markets.
