This year has witnessed a significant decline in Bitcoin’s weekend trading volumes, dropping to a historic low of 16%.
Market analysis by Kaiko attributes this downturn to the recent introduction of spot Bitcoin Exchange Traded Funds (ETFs), which have altered Bitcoin’s trading dynamics, aligning them more closely with traditional stock market activities and reducing overall price volatility.
Impact of spot ETFs on trading patterns
The deployment of spot Bitcoin ETFs has notably transformed Bitcoin’s trading landscape. These ETFs operate similarly to traditional stock investments, attracting more regularized trading volumes and schedules. With the ETFs’ influence, there has been a notable increase in liquidity during the trading day, predominantly during the benchmark fixing windows utilized for determining the Net Asset Value (NAV) of these funds.
This NAV is crucial for share creation and redemption within the ETFs and is calculated based on the fixing price established during the designated window. The principal exchanges setting these benchmarks include Bitstamp, Coinbase, itBit, Kraken, Gemini, and LMAX Digital. NAV calculations occur after the market closes at 4 PM.
Bitcoin trading volumes surged in October, rebounding from lows experienced during the summer, which coincided with heightened anticipation of ETF approvals. This revival in trading volumes was further supported by a conducive macroeconomic environment and forecasts of multiple interest rate cuts by the end of 2024.
Varied global response to spot ETFs
While the U.S. market has responded robustly to the introduction of spot Bitcoin ETFs, the reaction in Hong Kong has been comparatively subdued. Following the launch of both Bitcoin and Ethereum spot ETFs in Hong Kong in April, average trading volumes saw a modest increase to $37 million. However, these figures fell short of the $73 million peak in March.
The lukewarm response in Hong Kong can be attributed to several factors, including its smaller market size compared to the U.S. and different market conditions at the time of the ETF launches. Notably, these launches occurred post-Bitcoin’s fourth halving and were marked by general market stagnation and outflows from U.S. spot BTC ETFs.
Moreover, market sentiment in Hong Kong during April was relatively bearish, as evidenced by negative Bitcoin perpetual funding rates, contrasting sharply with earlier bullish trends in the U.S.
Trading volume distribution and market shifts
The introduction of ETFs has also shifted market dynamics, particularly regarding where Bitcoin trading volumes are concentrated. For instance, Binance, the largest global exchange not regulated in the U.S., typically experiences peak trading volumes when the U.S. market opens. However, it sees a decline throughout the day due to its exclusion from ETF benchmarks, primarily considering BTC/USD trading pairs.
Conversely, Coinbase, a major player in all Bitcoin reference rates and regulated within the U.S., reports significant trading activity concentrated around the U.S. market opening hours, with average volumes escalating to approximately $220 million by the close of the benchmark fixing window.
Since the ETF-induced rally began in October, the overall liquidity share on U.S. exchanges has risen to 45%, up from 35% the previous year. This shift underscores a growing preference and reliance on regulated U.S. markets, especially in light of the new trading frameworks introduced by spot ETFs.
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