Although the inflow of funds into Bitcoin spot ETFs has exceeded expectations, reaching $10 billion in just two months, the future of speculative funds remains uncertain. This article, sourced from the founder of biancoresearch and compiled by Carbon Value, examines the current situation and provides evidence to support this view.
When will we truly “test” the confidence of Bitcoin spot ETF buyers? The average purchase price is around $57,000. Only then will we know how strong these buyers really are.
I have always believed that Bitcoin spot ETFs have not experienced the long-term strong buying frenzy from wealth management institutions. Instead, similar to artificial intelligence stocks (especially NVDA and $MSTR), a large amount of short-term trading and speculative (degen) funds have poured into Bitcoin spot ETFs, exceeding $1 billion per day earlier this week.
If I am correct, as the old saying in Tradfi goes, what comes up must come down; the influx of weak speculative funds may quickly flow out and turn corrections into collapses. And this outflow (or tokens) must find buyers at any price immediately.
This could expose the design flaws of these Bitcoin spot ETFs (no physical transfer). If that’s the case, it may undermine the commitment to long-term adoption of funds, which will take years, or even longer if the market starts to resemble an out-of-control casino.
First, let’s look at the flow of funds so far. Since trading opened on January 11th, a total of $12 billion has flowed into Bitcoin spot ETFs in the United States (black line). The following chart shows the daily flow.
Some argue that GBTC should be excluded from the US dollar amount. In my opinion, a considerable portion of the funds (at least half) may have been transferred from the high-fee $GBTC (150 basis points) to the low-fee Bitcoin spot ETFs (average of about 30 basis points). Therefore, it should be included.
I also include a chart for the “x-GBTC” group, as shown below. Over $23 billion has flowed into Bitcoin spot ETFs excluding GBTC.
Based on daily flows and prices, we can calculate the average purchase price (cost) of all inflows quite accurately (again, not exact but close enough). To do this, we take the Bitcoin spot price at 5:00 PM Eastern Time and average it with the daily inflow weighted average.
As shown in the chart, the average purchase price for $12 billion of spot BTC is $57,600 (orange line). The bottom panel shows that these ETF holders hold $2.7 billion in unrealized profits.
Here is the x-GBTC version. The average purchase price is $54,600, with unrealized gains of $6.97 billion.
This indicates that a 20% correction would wipe out all of their unrealized profits. And then what? Everyone wants to believe they are hodlers. Perhaps, but the evidence I see suggests that they have all run away.
First, it should be noted that nobody knows who is buying these ETFs or any ETF for that matter. We know they are being bought, but are they retail investors, institutions, trading accounts, or long-term endowments? ETFs offer transparency on who is buying in exchange for openness, allowing anyone to buy. (Therefore, while we have an informed view of them, it is still just speculation.)
So, anyone claiming to be a wealth management firm is speculating (or hoping) if they are ETF providers. Anecdotal conversations with wealth managers indicate that they are interested in monitoring these ETFs but are not actively promoting them to clients.
The only buyers through wealth managers are clients who come directly from customers. And these people are very, very few.
So why do I believe this is speculative money? The trading volume is staggering.
As shown in the chart, the daily trading volume of the two spot ETFs (orange) exceeds that of $SPY (blue) or $QQQ (green). On March 5th, the trading volume of 10 Bitcoin spot ETFs was 709,820, surpassing the total of SPY and QQQ!
Therefore, the average trade size of the 10 Bitcoin spot ETFs is only $17,000 (blue), compared to $55,000 for $GLD (orange), $101,000 for $QQQ (green), and $142,000 for $SPY.
To reiterate, these ETFs are being bought rapidly with small, high-frequency trades. This is good during an uptrend but may be better during a pullback.
The Bitcoin bulls in an upward trend say, when will you admit you were wrong? They confidently state that these Bitcoin holders are entering a new asset class. They will never sell and there will be monthly inflows until the end of time.
Last Wednesday, brokerage firm JMP Securities stated in a research report that Bitcoin spot ETFs could see $220 billion in inflows in the next three years, which means that if the multiplier of new capital is adopted, the price of BTC could double to $280,000.
JMP analysts stated that if their estimates of inflows prove to be correct, cryptocurrency exchange Coinbase is still in a favorable position. According to Factse data, the brokerage firm raised its target price for the stock from $220 to $300, the highest among Wall Street analysts, while maintaining its “outperform” rating. As of March 14th, Coinbase’s stock price rose 2.6% to $262.92.
JMP stated that Coinbase is well-positioned and has raised its target price for the stock from $220 to $300. Additionally, Wall Street giant JPMorgan expects Bitcoin ETFs to see $62 billion in inflows over the next two to three years.
While the inflow of Bitcoin ETFs has exceeded expectations, reaching $10 billion just two months after its launch, JMP states that the process and flow experienced so far is likely just the tip of the iceberg. They also added that the flow will continue to grow significantly as the approval of ETFs is just the beginning of a “longer capital allocation process.”
My answer is simple: let’s see what happens in the next 20% correction when their unrealized profits disappear.
Please refer to the variant of the chart below as an example.
In the first month of Bitcoin spot trading, BTC did experience a 20% correction.
And 40% of the funds exited.
Related Reports
Thai SEC allows investment in “Bitcoin Spot ETF”! Limited to institutions and high-net-worth professional investors.
FSC targets ETF frenzy! Prohibiting influencers and media from promoting “beating time deposits”, crypto ads will also be restricted?
Bitcoin surges and then retraces! Key data such as ETFs and stablecoins help you judge the future market direction.