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What’s the Verdict on Bitcoin ETFs?

By Evan Jones02/12/2024

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Spot Bitcoin ETFs went live in early January, but for some reason Bitcoin isn’t at $1 million per BTC, much to the chagrin of many investors. Those with more tempered expectations are likely not concerned at all, as when you dig into the data, there’s not a lot to be concerned with regarding Bitcoin’s price action following the ETF approvals. 

But are Bitcoin ETFs the game changer the industry was hoping for? Let’s dig in and see what’s been going on since spot Bitcoin ETFs were approved. 

Sell the News?

There are likely many investors who would have told you to sell the news with Bitcoin rather than buy the asset, depending on when you had bought in. In the days leading up to the approval announcement, Bitcoin reached just about $48k USD per unit, but in the two weeks following, it dropped to below $40k USD, getting as low as $38.5k USD before bouncing off that mark. 

As with many things, if you were buying Bitcoin because you were hearing about it in the news, then you were likely too late to be buying for any sort of quick flips returns. However, when you look into the pricing of Grayscale’s Bitcoin Trust leading up to the approvals, there are some clear reasons why Bitcoin’s price tumbled. 

GBTC Outflows

Grayscale’s closed-ended ETF was the largest holder of Bitcoin in the world leading up to the approval of spot Bitcoin ETFs and the conversion of their ETF into an open-ended one. For the last couple years, the shares of their closed-ended ETF had been trading at a discount, meaning that you could buy them for less than the amount of Bitcoin the share was valued at. 

Because of this, as the spot Bitcoin ETFs became closer to approval, and when they were approved, the discount disappeared, meaning the shares became worth what they were actually worth. This meant that anyone who had bought at a discount, had a big opportunity to sell their GBTC when the ETF was converted to an open-ended in order to take large profits. 

That’s exactly what happened, as Grayscale’s Bitcoin holdings have dropped by 21% since the spot Bitcoin ETFs were approved. That means they’ve sold over 132k BTC, which is no small sum. But as we’ll see, this has just been absorbed by the other ETFs.

BlackRock and Fidelity Thriving

Even though Grayscale has sold over 132k BTC, the other 9 spot Bitcoin ETFs have added more than 150k BTC to their holdings, meaning that there has been a net positive for spot Bitcoin ETFs overall.

Furthermore, BlackRock and Fidelity spot Bitcoin ETF products both ranked inside the top 10 for ETF inflows amongst all ETF vehicles available in the US, which is no small feat. BlackRock saw an estimated $2.6 billion in inflows, while Fidelity saw $2.2 billion. Though GBTC saw $5.7 billion in out flows, the overall inflow for these ETFs is 3% higher than it was when the ETFs were approved.

What’s the Verdict?

With a net positive for in flows for spot Bitcoin ETFs, it’s hard to say it has been anything but a success for the industry. Though the price of Bitcoin hasn’t skyrocketed with the approvals, it has instead gone through some healthy corrections and the market has all but completely absorbed the BTC that was being sold off by Grayscale as their holder’s left their positions.

Two of the ETFs being inside the top 10 for in flows for all ETF investment vehicles is impressive as well, and likely not something many critics would have expected. While it remains true that it’s likely better for those interested in investing in Bitcoin to buy it directly themselves, the option of ETFs for those who are unwilling to learn crypto wallet custody is worth having. 

Closing Thoughts

With the Bitcoin halving still on the horizon, there is likely to be a lot of fluctuation for Bitcoin’s price as we approach it. The inflows and outflows towards spot Bitcoin ETFs leading up to the halving will be an interesting metric to keep an eye on in addition to the price of BTC itself. Historically, Bitcoin may not enter into the halving with the strongest price action, but it always rebounds. How it plays out with spot Bitcoin ETFs now available is anyone’s guess.

Article tags

Beginner
cryptocurrency
etf
Evan Jones

Author

Evan entered the crypto scene in 2017, attracted to the many disruptive possibilities that blockchain could have on current world systems. He has a keen interest in decentralized services, payment processing, and viable NFT use cases such as event ticketing. He spends his days writing with his dog Kobe under his feet, if not on his lap.

Further reading

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