The debut of the spot Bitcoin exchange-traded fund (ETF) on January 12 was met with some chaos. Investors were unsure of the actual inflow, and market makers faced challenges with different liquidation timelines for each instrument. Despite this, the traditional finance industry saw a record high of $4.66 billion in volume on Bitcoin spot-based ETFs. But does this justify a Bitcoin price rally above $47,000?
Criticism arose regarding the Grayscale GBTC, which previously existed as a Trust fund and held over $27 billion worth of BTC. In just the first three trading days, the GBTC experienced $1.17 billion of net outflows. Most of these outflows occurred on January 13 and January 16, offsetting 86% of the inflows to other spot Bitcoin ETFs during that period. In total, there was only a mere $157 million net inflow in two days.
The majority of the $782 million net inflow highlighted in the data occurred on the first trading session. Due to different settlement times, arbitrage desks were unable to exit their GBTC positions on January 12. Critics are correct in noting that most of the spot Bitcoin ETF inflows have been paired with outflows from the Grayscale GBTC. However, even if the first trading day is excluded, there is still a total net inflow of $157 million in the products issued by BlackRock, Fidelity, Bitwise, Ark/21 Shares, Invesco, and other ETFs. The real question is whether the exit from GBTC will continue and if the aggregate net inflow is sustainable in the long run.
Assuming the same pattern continues for the next month, with GBTC experiencing an $11.3 billion net outflow while the remaining spot ETF contenders capture a $13 billion net inflow, what will be the expected price impact of the $1.7 billion growth of the spot Bitcoin listed funds in the U.S.? From a trading perspective, this number seems insignificant since those ETFs traded a combined $1.9 billion on January 16 alone.
There is undoubtedly ongoing demand for spot Bitcoin ETFs. However, it’s important to differentiate between volumes and flow. It’s impossible to know if a seller is simply closing a position acquired earlier in the day, or if a buyer is engaging in the opposite trade in derivatives markets or at different exchanges for arbitrage opportunities.
One thing is certain: investors are likely to gradually migrate their holdings from Grayscale GBTC to other contenders that offer lower fees. So, regardless of whether it takes 20 or 120 days for this movement to stabilize GBTC holdings at a certain level, investors should focus on who is buying the remaining $157 million in two days.
A social network user named ‘Byzantine General’ posed this question, implying that there is an actual ongoing demand for spot Bitcoin ETFs. At current price levels, Bitcoin miners receive $76.1 million worth of newly issued coins every two days, so the recent spot ETF net inflows are slightly more than twice that value. Additionally, the resulting price impact will change significantly after the Bitcoin halving in April.
It is premature to assume that the marginal spot ETF buying will continue to counterbalance the net outflow from Grayscale GBTC funds. Data could easily shift to favor diminishing aggregate assets under management for the industry, including CME’s Bitcoin futures open interest. However, Bitcoin bulls can take solace in knowing that eventually the GBTC holdings will deplete or stabilize, paving the way for a bull run above $47,000 as investors realize the impact of the Bitcoin halving on the supply side.
Please note that this article does not provide investment advice or recommendations. Every investment and trading move carries risks, and readers should conduct their own research before making decisions.