Bitcoin ETF Analysis: Flows, Volume, & Roadblocks
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Today marks the first of a twice-weekly research series we're doing here at Theya. We'll be analyzing all of the relevant happenings across bitcoin, stocks, economic data, and more to keep you in sync with the drumbeat of global markets.
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With that, let's dive in.
So 15 years on from bitcoin's genesis block, spot bitcoin ETFs were finally, albeit reluctantly, approved by the SEC, much to the chagrin of Chair Gary Gensler, who had this to say in a rather salty statement following the mass approval:
"Though we’re merit neutral, I’d note that the underlying assets in the metals ETPs have consumer and industrial uses, while in contrast bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.
While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto."
The 11 spot bitcoin ETFs that were approved for trading or conversion from another vehicle, and their respective management fees, are as follows:
It is worth noting that Hashdex's ETF is still transitioning from futures-based to one that holds spot bitcoin as its underlying asset. All 10 of the other vehicles have been converted to exchange-traded funds and can now buy and sell the underlying asset at the end of each trading day to accurately track bitcoin's spot price. This is something that Grayscale's GBTC product, a closed-end trust, has not been able to do, and thus has held onto more bitcoin than it had investors in the fund. This discrepancy of too many sellers and bitcoin that can't be sold led to a large discount of GBTC's price relative to the value of the fund's assets—a discount that has almost converged with the fund's value now that it has been converted into an ETF, thanks in part to Grayscale selling a lot of bitcoin now that they're able to:
Bitcoin's sharp selloff from a local top of $49,000 at 9:30am on ETF launch day can be partly attributed to Grayscale selling its underlying BTC holdings in order to bring the fund in line with the trust's price for the first time in three years. Another reason behind the swift selloff is a leverage wipeout. The market was overloaded with long positions that used their own bitcoin as collateral, once the price started to move in the wrong direction, these positions had to liquidate which exacerbated the selloff. It is poetic that immediately after bitcoin opened up to its largest investor class yet, it dumped. Like cracking a bottle of champagne over the hull of a cruise ship before its maiden voyage, the institutions and retirees got a taste of the sudden drops that have been a hallmark of the asset for years:
Grayscale's GBTC has been the bitcoin proxy vehicle of choice since 2015 for investors who have had an itch for bitcoin exposure but are restricted to retirement or institutional investment accounts, amassing $28.58 billion in client assets in that time.
Now that other vehicles are on the market, with lower management fees than GBTC, an exodus of funds from GBTC and into its cheaper counterparts is underway. Note that GBTC has experienced $95 billion in net outflows since its conversion, while every other ETF spearheaded by Bitwise's offering have seen a combined $720.86 billion in inflows over the last two trading days. This 10-vehicle launch for bitcoin is officially the largest ETF launch for a single asset of all time:
So why no commensurate price pop in bitcoin after this record-setting day? A combination of Grayscale's bitcoin selling, and most of the capital flowing into the 10 new ETFs flowing out of GBTC, and other bitcoin and "crypto" adjacent investment vehicles. Now that there is a selection of 1:1 bitcoin proxies to choose from, investors no longer need to bend over backward to get exposure to bitcoin's price movements—much of these inflows have ostensibly been a rotation from these other assets. The flows in the coming months will be much more telling, and will likely have a visible impact on bitcoin's price if the market remains risk-on.
We look to the first gold ETFs for an indication of what to expect here. When the first ever gold ETF was launched on March 28th, 2003 in Australia, gold was $331.85/oz. When the first US-based gold ETF was launched on November 18th, 2004, gold was $447.05 per oz. Gold today is $2,049.06, meaning gold's price is 6.17 times higher since its first ETF and 4.58 times higher since the first gold ETF was listed on the New York Stock Exchange.
Food for thought, especially considering bitcoin is absolutely scarce, most of the existing supply hasn't moved in years, there are fewer than 2 million left to be created, and its supply schedule to create the remaining 6.7% of bitcoin to ever exist will take the next 116 years. It is not hyperbolic to say: buckle up.
There are a few roadblocks for investors. Vanguard and Bank of America-owned Merill Lynch have blocked the bitcoin ETFs from trading on their platforms, with Vanguard going so far as to retroactively delist all existing bitcoin-adjacent investment products. Vanguard said in a statement:
"“While we continuously evaluate our brokerage offer and evaluate new product entries to the market, spot Bitcoin ETFs will not be available for purchase on the Vanguard platform,” a Vanguard spokesperson confirmed to the media, adding that the company has “no plans to offer Vanguard Bitcoin ETFs or other crypto-related products.”
“Our perspective is that these products do not align with our offer focused on asset classes such as equities, bonds, and cash, which Vanguard views as the building blocks of a well-balanced, long-term investment portfolio,” the spokesperson added."
Vanguard is the second-largest asset manager in the world with $7.25 trillion in assets under management. Merill Lynch is a wealth management division of Bank of America that currently has $2.8 trillion in client assets. More than $10 trillion of investor capital is being arbitrarily barred from gaining exposure to bitcoin, a hedge against perpetual monetary debasement and runaway fiscal spending for a world ravaged by it.
The old guard is doing everything in their power to prevent the emergent better money that will eventually displace them; they don't want you to have a way out. Bitcoin hinders their ability to fund themselves via monetary devaluation, which is less effective if the pool of USD they have to dilute is shrinking. This is their way of stemming the flood.
And herein lies the problem with these ETFs: you have no ownership of the underlying bitcoin, and therefore it can be taken from you for any reason at any moment. It only takes a few years from arbitrarily denying their sale to going door to door and seizing them Executive Order 6102-style.
If you have money outside of your 401k, don't buy the ETF. If you're not an institution, don't buy the ETF. Use bitcoin the way it was intended: as a bearer asset that is held and owned outright by the owner so they can transact and store it freely without fear of confiscation or devaluation. In other words: buy real bitcoin, then take it into self-custody.
Bitcoin is the world's first digital bearer asset, where, unlike stocks and bonds, you hold ownership over the asset, can custody it yourself, and decide what you want to do with it. Self-custody with maximum security using Theya and enjoy hassle-free self-custody, with a 2-of-3 multisig solution for maximum security and peace of mind. Download Theya on the App Store and declare your sovereignty today.
Talk to you guys soon,
Joe