Insight
February 2, 2024
The action in the ETF landscape continued again in the third week, bucking the trend of ETF launches settling down after the first few trading days. This week saw a flip in net flows for the total complex, from net outflows to net inflows. The redemptions of the Grayscale Bitcoin Trust (GBTC) have leveled off and are now being more than made up by inflows into the 9 new challenger funds. Net cumulative inflows into the spot ETF complex now stand at $1.5B, ahead of the $1.3B flows into BITO at the same point of its launch, but still below the $2.0B raised at a similar point for GLD.
The market breathed a sigh of relief at the end of last week as the outflows from GBTC, which many had seen pressuring spot markets, began to slow. And while the data shows that outflows are well down from the daily peak $641M, money continues to flow out of GBTC to the tune of about $200M per day. This daily outflow has leveled off, but it has yet to see a complete wind down. While it helps spot price that inflows into challenger ETFs are now greater than GBTC’s outflows, it looks premature to call a complete cessation to the GBTC outflows. Since the conversion to an ETF, GBTC has seen redemptions for a cumulative total of $5.8B, about 20% of the $28.6B AUM it had at the onset.
Since the beginning of spot ETF trading, two players have been neck and neck in the race to catch Grayscale’s massive AUM lead: BlackRock’s iShares Bitcoin Trust and the Fidelity Wise Origin Fund (Satoshi Nakamoto roughly translates to “Wise Origin”). While BlackRock had consistently held a slight edge over Fidelity, on Thursday things changed when Fidelity’s inflows dropped from its $175M per day average to just $35M, while BlackRock saw another $164M of inflows. It’s too early to consider this slowdown for Fidelity a trend, but it certainly opens some “daylight” between the top two challenger funds. BlackRock’s AUM has now topped $3.0B while Fidelity sits at $2.6B. Ironically, even with the $1.5B of net inflows into the spot ETF complex, total AUM for the 10 funds including GBTC stands at $28.1B, which is below where just GBTC was before start of ETF trading.
The peculiarities of the spot ETFs, notably the cash create/redeem mechanism for Authorized Participants (AP), which require a third-party Liquidity Provider (LP) for the bitcoin leg of trading, had a noticeable impact on the ETFs at the onset of trading. This friction, along with other operational and settlement complexities, caused the ETFs to trade at values that differed greatly from their net asset values (NAV). The ETFs which have only seen inflows, the 9 challenger ETFs (represented below by IBIT and FBTC), traded at significant premiums to NAV, while GBTC, which has seen only outflows, traded at a discount to NAV. However, those differences have narrowed over time, indicating that these initial kinks have been largely worked out.
Spot ETF volumes have traded a higher share of the underlying spot market compared to futures-based ETFs and the underlying futures market. This is a measure of success of the spot ETFs to us and indicates investor preference to trade the spot ETFs over the underlying spot markets whereas in the case of futures and the futures ETFs, the preference is reversed. Investors seem to prefer the underlying futures markets as opposed to the futures ETF. This data is still early, and the number of exchanges, while encompassing many of the major players (Binance, Bitfinex, Bitstamp, Coinbase, Crypto.com, Gemini, Huobi, itBit, Kraken and OKX), is not completely exhaustive. However, the share of ETF volumes to spot volumes would be even higher when considering just the onshore exchanges accessible to US investors.
Bitcoin’s price rallied back this week as fears of over overwhelming GBTC outflows subsided. As our analysis above indicates, GBTC outflows haven’t ceased entirely, but seems to have plateaued to a level so that it is more than offset by flows into the challenger ETFs. Stocks had a mixed week, with the S&P 500 up 0.3% and Nasdaq Composite down 0.9%. Comments from Fed Chair Powell indicated a March rate cut expected by the market was not on the table, sending risk assets tumbling on Wednesday. However, the sell off was short lived as both the S&P 500 and Nasdaq Composite have recovered their FOMC-induced losses and then some. For bonds, while they were up on the week, they are now lower than levels before the FOMC meeting. Investment grade corporate bonds were up 1.7%, high yield bonds were up 0.3%, and long term US Treasuries were flat. Gold rallied 1.7% while oil prices fell 4.6%.
Of additional importance this week was the precipitous fall in the shares of New York Community Bancorp (NYCB), which was negatively impacted by rising loan loss provisions on its office and commercial real estate loan book. It was barely a year ago when the banking industry was gripped by the failures of Silvergate, Signature, Silicon Valley, and First Republic. Today, the issues facing NYCB (credit risk) seem to be very different than the ones confronted by the industry a year ago (interest rate risk), but this is certainly something to keep an eye on. As a reminder, bitcoin performed well against the backdrop of the regional banking crisis a year ago.
Analysts Predict Charles Schwab Will Eventually Offer Its Own Bitcoin ETF - The Block
FTX Is Unloading Crypto to Raise Cash and Pay Back Customers - Bloomberg
ARK Invest Says Optimal BTC Portfolio Allocation for 2023 Was 19.4% - CoinDesk
ARK Big Ideas 2024 Report - ARK Invest (Bitcoin begins on page 34)
FTX’s Missing Funds Were Stolen in SIM-Swapping Hack, DOJ Says - Bloomberg
Indictment in FTX SIM-Swap Hack - Ars Technica
Three Individuals Charged for Roles in $1.89B Cryptocurrency Fraud Scheme - DOJ
Bitcoin-Based DEX Portal Raises $34 Million In Seed Funding - The Block
Celsius' Bitcoin Mining Assets to Restart Under Ionic as the New Unit Prepares to Go Public - CoinDesk
Binance Launches Marketplace for Inscription Tokens - The Block
Bankrupt Genesis Settles SEC Lawsuit Over Gemini Earn Program - The Block
FTX Expects to Repay Customers in Full, Bankruptcy Lawyer Says - Bloomberg
Alan Howard Shops His Own Crypto Stakes to Grow Brevan Howard Digital - Bloomberg
Feb 13 - January CPI reading
Feb 15 - End of comment period for options on bitcoin ETFs
Feb 23 - CME expiry
April 21 - Bitcoin block reward halving
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