The launch of these the Bitcoin spot-Exchange Traded Funds (ETFs) marked a significant milestone, as they opened doors for substantial capital influx into the Bitcoin market. Many experts anticipated a massive surge in capital inflows into Bitcoin, potentially running into tens or even hundreds of billions of dollars. This optimism stemmed from the fact that a considerable amount of capital had been on the sidelines, waiting for an opportunity to invest in Bitcoin through a more traditional and regulated financial product.
To assess the success of the ETF launch, it's crucial to examine the actual trading data. Bloomberg's Senior ETF expert, Eric Balchunas, provided valuable insights into this. The total trading volume for the ten newly launched ETFs was an impressive $7.85 billion in the first two days. However, a closer analysis, which involved adjusting these figures by excluding the volume of GBTC (a previously established Bitcoin trust converted into an ETF), revealed a more nuanced picture. The adjusted figures indicated a total of $3.6 billion in new investment interest in the first two days.
Notably, IBIT and FBTC, two of the newly launched ETFs, traded a combined total of nearly 90 million shares in just two days. These were not insignificant numbers, considering their trading prices of $25 and $38 respectively. Such high volumes indicated a significant market interest. Moreover, the trading activity in WisdomTree's BTCW, although smaller in comparison, was still higher than 95% of over 500 ETFs launched in the previous year.
However, the influx of new capital into the Bitcoin ecosystem as a result of these ETFs was less than expected. While a substantial $819 million entered the Bitcoin ETFs in the first two days, it fell short of the multi-billion-dollar expectations. This outcome necessitates a consideration of various factors that might have influenced the initial performance of these ETFs.
One important aspect to consider is the market making of the ETFs and the trading friction involved. In the early hours of trading, each ETF exhibited wide and volatile bid-ask spreads, which, however, narrowed significantly over the first two days. By the end of the second day, the spreads for both IBIT and FBTC had reduced to just a few pennies, indicating a successful adjustment by the market makers, also known as Authorized Participants (APs).
Another key factor was the performance of the ETFs in terms of their NAVs. By the end of the second day, the NAVs of each ETF closely matched the underlying amount of Bitcoin they represented, reflecting the efficiency and accuracy of these financial products. This was a significant achievement, especially considering the issues with previous instruments like GBTC, which often traded at a large premium or discount to the underlying Bitcoin price.
The role of GBTC in this context is also noteworthy. The conversion of GBTC from a publicly traded trust to a spot ETF had a considerable impact on the market. Many original holders of GBTC were waiting for this conversion to sell their shares at full value, leading to a high volume of selling in GBTC during the ETF launch week. This selling activity was offset by the actions of the APs, who managed the liquidity by redeeming shares and selling the underlying Bitcoin, thus maintaining the NAV of the GBTC ETF.
CONCLUSION
While the initial capital inflow into the Bitcoin ETFs was substantial, it did not reach the levels that many had anticipated. This, however, does not necessarily indicate a failure but rather a gradual and evolving process of market adaptation. The launch of these ETFs has paved the way for more traditional capital to access Bitcoin, but it will take time for the full impact of this development to unfold. As with many innovations in the financial world, especially those related to cryptocurrencies like Bitcoin, patience and a long-term perspective are key. The journey of Bitcoin and its associated financial products, like the newly launched ETFs, is complex and filled with both challenges and opportunities, requiring a measured and informed approach from investors.