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 Founder of Biancoresearch and compiled by Carbon Value, discusses the flow of funds, average costs, evidence, trading volume, and concludes with the question of when we can truly test the confidence of Bitcoin spot ETF buyers.
The author believes that Bitcoin spot ETFs have not seen a long-term surge of wealth management institutions rushing to buy. Instead, like 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 the author is correct, as the saying goes in Tradfi, “What goes up must come down.” The influx of weak-handed speculative funds may rapidly flow out, turning corrections into collapses. And this outflow (or token) wave must immediately find buyers at any price.
This could expose the design flaws of these Bitcoin spot ETFs (lack of physical transfer). If so, it may undermine the commitment to long-term adoption of funds, which will take years, and 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 all US Bitcoin spot ETFs (black line). The following chart shows the daily flow.
Some argue that GBTC should be excluded from the USD. In my opinion, a significant 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 (averaging about 30 basis points). Therefore, it should be included.
I also included a chart of the “x-GBTC” version, as shown below. Over $23 billion has flowed into x-GBTC, excluding GBTC.
Based on daily flow and price, we can reasonably calculate the average purchase price (cost) of all inflows (again, not exact but close enough). For this, we take the Bitcoin spot price at 5 PM Eastern Time and average it weighted by daily inflow.
As shown in the chart, the average purchase price (cost) for $12 billion of spot BTC is $57,600 (orange line). The bottom panel shows that these ETF holders have unrealized profits of $2.7 billion.
Below is the x-GBTC version. The average purchase price (cost) is $54.6 thousand. The unrealized profits are $6.97 billion.
This indicates that a 20% correction would wipe out all of their unrealized profits. And then? Everyone claims to be a hodler. Perhaps, but the evidence I see is that they all run.
First, it is important to know that no one knows who is buying these ETFs or any ETFs for that matter. We know they are being bought, but are they retail investors, institutions, trading accounts, long-term endowment funds? ETFs trade transparency for openness about who is buying (so while we have informed views, it is just our guess).
Therefore, anyone claiming to be a wealth management firm is speculating (and if they are ETF providers, more like hoping). Anecdotal conversations with wealth managers indicate that they are interested in following these ETFs but not promoting them to clients.
The only clients buying through wealth managers are clients coming directly from clients. And those are very, very few.
So why do I think this is speculative money? The trading volume is staggering.
As shown in the chart, the daily trading volume for the two spot ETFs (orange) exceeds that of $SPY (blue) or $QQQ (green). On March 5th, the trading volume for 10 Bitcoin spot ETFs was 709,820, surpassing the combined total of SPY and QQQ!
Therefore, the average trade size for 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 rapidly bought by fast money in small, high-frequency trades. This is good when prices are going up but could be better during pullbacks.
The Bitcoin bulls in an upward trend say, “When will you admit you were wrong?” They confidently claim 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 over the next three years, which means the price of BTC could double to $280,000 if the estimated capital inflow is adopted. JMP analysts also raised their target price for Coinbase from $220 to $300, making it 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-prepared and has raised its target price from $220 to $300. Additionally, Wall Street giant JPMorgan expects $62 billion in inflows into Bitcoin ETFs over the next two to three years.
Although the inflow of Bitcoin ETFs has already exceeded expectations, reaching $10 billion just two months after launch, JMP states that the process (and flow) experienced so far is likely just the tip of the iceberg and adds that the flow will continue to grow significantly as the approval of ETFs is only the beginning of a “longer process of capital allocation.”
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 for an example.
In the first month of Bitcoin spot trading, BTC did indeed correct by 20%.
And 40% of the funds left.