Skip to main content

Though Bitcoin gave back a chunk of its ETF hype rally once the spot-backed funds were launched on January 11, net flows into these new products indicate that interest in owning crypto-backed ETFs is very strong. Inflows surpassed outflows to the tune of more than $780 million in the first few days of trading in the 11 ETFs, which have garnered a tsunami of volume equivalent to more than $10 billion thus far. Excluding Grayscale’s GBTC product, net flows have been closer to $2 billion. GBTC is the largest of the ETFs by far, having been converted from a pre-existing Bitcoin trust product. A high fee structure, an end to the trust’s former lockup period, and the closing of a long-standing discount to NAV has also made GBTC the primary source of outflows in the Bitcoin ETF ecosystem.

The next big crypto question mark for securities regulators will be their approach to Ethereum-backed ETFs. Applications to introduce such products have already been filed by a list of asset managers that includes BlackRock. ETH has significantly underperformed Bitcoin over the past two years, but that pattern could be set to reverse if prospective ETH funds can expect a path to approval ahead.

Related Assets: Bitcoin (BTC-USD), Ethereum (ETH-USD)

The initial launch of 11 spot-backed Bitcoin (BTC) ETFs was largely a “sell-the-news” event, sending the unit price of BTC tumbling from nearly $49,000 in the opening minutes of trading on January 11 down to less than $42,000 by the next day. MRP noted that most of the burgeoning optimism from the ETF narrative had likely been priced in by December 20. On that date, MRP suspended our LONG Bitcoin theme, which had been in place since August 30. Throughout that period, the ProShares Bitcoin Strategy ETF (BITO) – which we used to track the performance of this theme – returned 53%, vastly outperforming a 4% gain in the S&P 500 over the same span of time.  In spite of the difficult price action throughout the past several days, which has slammed crypto investors and owners of the ETFs alike, data covering the actual fund flows have painted a more optimistic picture and showed that rumors of a drought in demand for crypto assets has been very exaggerated.

Unlike the futures-based Bitcoin ETFs that have been available in the US for some time, spot funds require the asset managers sponsoring the ETFs to acquire and custody a certain amount of Bitcoin to back the shares issued. Though it is difficult to track the flows of the spot BTC funds in real time, due to the presence of T+1 and T+2 settlement for some trades, three trading days’ worth of data gives us a reasonably good idea of how much initial interest was pent up for Bitcoin-backed ETFs. Per Bloomberg Intelligence’s Eric Balchunas, rolling net flows over that period show a net inflow worth $782 million. As it stands, data indicates that the top holders of Bitcoin among new US ETF sponsors are BlackRock, Fidelity, and Bitwise, currently in custody of 16,362 BTC, 12,112 BTC, and 11,003 BTC, respectively. The combined value of the 39,477 BTC held in just those three funds is worth nearly $1.68 billion. Further, these funds have generated a tsunami of volume in just a few days, equivalent to…

To read the complete Intelligence Briefing, current All-Access clients, SIGN IN

All-Access clients receive the full-spectrum of MRP’s research, including daily investment insights and unlimited use of our online research archive. For a free trial of MRP’s All-Access membership, or to save 50% on your first year by signing up now, CLICK HERE