In late 2023, as the SEC considered whether BTC spot ETFs should be allowed to begin trading publicly, a debate erupted over the extent to which future approval or rejection of such funds had already been priced into the market. Now, half a year later, we have access to the data. In this article, I’ll take a look at how ETFs are influencing the cryptocurrency market and how they’ve developed over the past few months.
Development of BTC ETFs
The first spot BTC ETFs debuted on January 11, 2024, after the U.S. Securities and Exchange Commission (SEC) approved 11 new funds of this type the day before. They track the current price of bitcoin, allowing investors to gain exposure to the largest cryptocurrency without having to buy it directly.
These funds achieve their goals by storing a significant amount of bitcoin in a custodian-managed wallet. This ensures that the value of the ETF’s shares is closely linked to the current market price of bitcoin, allowing investors to participate indirectly in the cryptocurrency market through a well-known and regulated investment vehicle.
The largest spot BTC ETFs such as BlackRock’s IBIT and Fidelity’s FBTC have seen significant growth in value and trading volume since their launch. For example, IBIT has already accumulated almost $21 billion in assets. This is evidence of growing interest from traditional investors. Major US banks such as Morgan Stanley and UBS are competing to offer such ETFs to their clients, further strengthening their credibility in the eyes of mainstream investors.
Market overview
While there are many new Bitcoin ETFs out there, in this article I’ll focus on the five largest by assets under management (AUM). They are currently GBTC, IBIT, FBTC, ARKB, and BITB. However, here’s a chart showing the current size of all the funds:
While all spot BTC ETFs share the same goal, there are key differences that may affect investor preferences. Here are a few:
Fees
ETF management fees vary between funds. GBTC is the most expensive with a fee of 1.5%. IBIT and FBTC are cheaper with fees of 0.19% and 0.20% respectively. ARKB charges 0.90% and BITB 0.20%.
sale
Some ETFs offer promotions. For example, IBIT has waived fees for a period of time, and EZBC does not charge fees for assets up to $5 billion.
Depositaries
ETFs use different custodians to store their bitcoins. For example, GBTC and IBIT use the Coinbase Custody Trust.
Resources
The amount of bitcoin held by ETFs varies, which affects their liquidity and accuracy in tracking the price. ETFs with larger bitcoin holdings may be more liquid and better at tracking the bitcoin price because they have more assets available to buy or sell as needed.
BTC Market Dynamics
When BTC ETF trading began on January 11, 2024, the price of bitcoin was around $46,632. By March 2024, its market value had increased significantly, reaching a local high of $73,000. To what extent can this price increase be attributed to increased demand for BTC related to ETFs?
The impact of ETFs on the BTC price
While BTC ETFs have undoubtedly had an impact on the bitcoin price rally since January, this is just one factor among many. The increased legitimacy and investor access provided by ETFs has had a positive impact on market sentiment and overall demand. In the following section, we will look at some of the variables that link ETF flows to broader market dynamics.
The major spot BTC ETFs currently trading in the US have a combined market capitalization of over $80 billion. GBTC already held 619,000 bitcoins when it launched its spot ETF.
A detailed breakdown of BTC ETF inflows and outflows, like this one from Block, shows which products are driving the majority of USD flows. A fund managed by BlackRock (IBIT) and Fidelity (FBTC) have brought in the majority of inflows so far, while Grayscale’s GBTC has seen almost exclusively outflows.
While there was an initial significant inflow of funds, some of that momentum was lost around mid-March of this year. However, since then we have seen a slow but steady increase. ETF trading volume has been steadily increasing, reaching a total daily volume of $422 billion at the time of writing.
But who is using this new investment vehicle to gain exposure to Bitcoin? Not only are large funds like Wisconsin Pension Plan, which has added over $150 million of exposure to the Bitcoin Spot ETF to its portfolio, but several smaller local institutions are also following the trend. Several financial services providers are also adding bitcoin to their balance sheets via spot ETFs, including Hightower Advisors ($68 million), Bracebridge Capital ($434 million), and Cambridge Investment Research ($40 million).
Demand and supply
The growing demand for bitcoin, fueled by increased availability through ETFs, is likely to have a significant long-term impact on the price of the largest cryptocurrency. The market price of BTC is of course a result of supply and demand. Since the halving in April, the average daily supply has decreased from 900 to just 450 coins.
On some days we saw inflows into ETFs as high as 10,000 bitcoins. If inflows continue at this level, exchanges may experience a supply shock in the future, which could drastically increase the BTC price. Historically, the impact of growing demand was especially visible a year after each halving, when cryptocurrency prices rose significantly.
Future Outlook: Are There Any New ETFs on the Horizon?
The next crypto ETF launch is already on the horizon, as the SEC approved multiple ETH ETFs in May 2024 and they could launch in just a few days. These are the following funds:
- Grayscale Ethereum Trust
- Bitwise Ethereum ETF
- iShares Ethereum Trust (BlackRock)
- VanEck Ethereum Trust
- ARK 21Shares Ethereum ETF
- Invesco Galaxy Ethereum ETF
- Fidelity Ethereum Fund
- Franklin Ethereum ETF
VanEck even published the first advertisement for his VanEck Ethereum Trust.
So far, details regarding the structure of these ETFs, management, and investment strategies have not been disclosed, but it can be assumed that their structure will be similar to that of BTC ETFs. The bottom line is that while the SEC did not officially declare it when it approved ETFs, it de facto recognized ETH as a commodity.
Following the approval of Bitcoin ETFs earlier this year and the recent approval of ETH ETFs, it is likely that more cryptocurrencies will be introduced to traditional financial markets in this way. Three weeks ago, on June 27, VanEck filed for a SOL spot ETF!
Final Thought
The emergence of BTC spot ETFs has undoubtedly revolutionized the investment landscape, offering a regulated and easily accessible way for traditional investors to engage with the cryptocurrency market. Half a year after launch, these funds have shown solid growth and significant market impact, which is visible in both asset flows and the BTC price. The significant interest from a diverse range of investors, including large pension funds and smaller institutions, underscores the broad acceptance and potential of these financial products.
The recent approval of ETH ETFs by the SEC represents another key moment, suggesting a trend toward mainstream cryptocurrency investing. As these ETFs develop and attract more investors, they will likely play an increasingly important role in integrating cryptocurrencies into broader financial markets.
