March 15, 2024
Greg Cipolaro

Research Weekly - Notes on the ETFs


  • Collectively the spot ETFs have been wildly successful, but even individually, most of the ETFs would be considered successful compared to most ETFs.
  • Grayscale responds to GBTC competition with a potential new fund, but one that will still need the SEC’s blessing before launching.
  • Interesting flow patterns emerge for three ETFs, two explainable, the other a mystery.

Notes on the ETFs

Without a doubt, the event of 2024 within crypto and perhaps the entire world of financial markets, has been the launch of spot bitcoin ETFs in the US. The event, over 10 and half years in the making, has had its share of twists and turns, and numerous stories contained within the broader stories. Today we present several items of interest that while seemingly disparate in nature, give us a better understanding of the bitcoin ETF picture.

ETFs Gather Net $12B in Funds Since Launch

The net inflows since the launch spot bitcoin ETFs on January 11th have been no short of astounding. Of course, it didn’t start off this way as the initial flows underwhelmed, peaking at a cumulative $1.3B before turning to nearly two weeks of net outflows that took the cumulative net inflow number down to $745M on the 10th day of trading. But today, the cumulative net inflow number stands at $12.0B, punctuated by over a billion dollars of inflows on Tuesday (3/12) alone.

While no one knows how much the ETFs will accumulate (a time dependent exercise as well), certainly that hasn’t stopped market prognosticators from prognosticating, we do have an important observation. Price movements and ETF flows will likely work in concert with each other - positive price momentum will likely lead to more inflows (and vice versa) in a self-reinforcing cycle, until one variable changes. Therefore, it is our suggestion, for the short-term oriented, to be cognizant of both fund flows and price action. Our other suggestion, of course, is to simply be long-term focused. It is naturally difficult to make a long-distance journey, of which the endeavor of money management ultimately is, by staring at your toes and attempting to avoid every crack in the sidewalk along the way.

Most Bitcoin ETFs Could be Considered an Individual Success

While much has been discussed about the internal rivalries within the spot bitcoin complex, one must also consider them in the broader context of the ETF universe. Yes, collectively the ETFs have been a huge success, but this also goes for the individual funds as well. According to recent academic research, the average ETF size is $1.75B while the median size is $147.2M. Two tangential thoughts come to mind. First, there are truly some monster ETFs out there that skew the average well above the median. Second, the median ETF, with an average fee of about 50 bps, must not be a big money maker. That amounts to about $740K in revenue for the median ETF using those numbers. ETFs are likely a winner take most market, as are many things in life, and a game of scale.

Considering those numbers, however, only one of the spot ETFs would be considered below the median, the WisdomTree Bitcoin Fund (BTCW) at $75M in net assets. The next smallest is the Franklin Bitcoin ETF (EZBC) at $228M in net assets, well above the median ETF size. We know that positional comparisons have real behavioral consequences though (one tends to care what ones’ neighbor makes, rather than what some other person in another city makes), so the fact that most of the spot ETFs are above the median is probably of little solace given that iShares Bitcoin Trust (IBIT) commands nearly $16B in net assets.

Grayscale Seeks to Create a Low-Cost Alternative to GBTC As Outflows Have Yet to Slow

It’s no surprise that GBTC has struggled amidst fierce competition from the offerings of BlackRock ($16.3B in AUM), Fidelity ($9.7B in AUM), ARK 21Shares ($2.9B in AUM), and Bitwise ($2.1B in AUM). All competitive funds have some sort of fee waiver, either on AUM amounts, durations, or both. However, even without the fee waivers, GBTC’s 1.5% expense ratio is still multiples of the 0.25% charged (without fee waivers) by the leading challengers, BlackRock and Fidelity. With that as the backdrop, GBTC has hemorrhaged $11.7B in funds since converting to an ETF, with no real clarity on when it all might stop. It really is amazing that GBTC’s AUM is flat (due to bitcoin price appreciation) since the ETF conversion despite losing about 41% of its initial funds.

This week saw Grayscale’s first competitive response, the filing of a registration statement for the Grayscale Bitcoin Mini Trust, ticker BTC. While important details are still missing, like the exact fee, the expectation is that this will be a low-cost version of GBTC with the highly coveted BTC ticker, which came through Grayscale’s 2021 investment in ClearShares, which owned the ticker. Shareholders of GBTC are expected to be given shares of BTC via a tax-free spin-off, thus seeding BTC with some amount of bitcoins and AUM (again, no details yet). The ETF will have to be approved by the SEC in the same manner as GBTC and the other ETFs, going through the form 19b-4 exchange rule change request gauntlet, lasting up to 240 days in total when the clock starts, and it has yet to start. Given that GBTC has lost $325M per day in March, that 240-day period, of which approval is not assured, could prove to be a very long one.

Gold ETFs have already set a precedent for introducing cost-effective alternatives within the same asset class from the same sponsor, catering to fee-conscious investors and gathering new funds.

VanEck Case Proves Fees Matter as Flows Jump After Fee Waiver

On Monday, VanEck announced that it would waive its fee on the VanEck Bitcoin Trust (HODL) entirely on the first $1.5B in assets until March 31st, 2025. Before dropping its fee to 0% from 0.2%, HODL had $320M in net assets, putting it in 8th place out of the 10 competing spot ETFs. But the fee announcement jolted inflows, resulting in $232M of inflows this week (through Thursday), vaulting it past Valkyrie Bitcoin Fund (BRRR) and into 7th place in term of net assets. This case illustrates, that at least of this short time frame, fees matter to investors.

Valkyrie Shows Steady Buying of $40M per Day

Last Wednesday, March 6th, an interesting fund flows pattern emerged for the Valkyrie Bitcoin Fund (BRRR). After a period of low daily inflows, the ETF suddenly jumped to $40M/d for a short period before falling back to a more historical range. In total over those 5 trading days of about $40M/d yielded $207M in cumulative flows. It is unclear as to the reason for the sudden jump and then fall in daily fund flows. Perhaps it had something to do with the acquisition of Valkyrie by CoinShares, which was closed on March 12th, the same day the $40M/d flows ceased, but the exact source is unknown.

Invesco Galaxy Outflows Likely Related to Galaxy Principal Transactions

The Invesco Galaxy Bitcoin ETF (BTCO) started showing sporadic daily outflows on February 9th, a day when bitcoin closed at $47,600. Today, those outflows have reached $154.2M cumulatively and our best guess come from Galaxy itself, acting on a principal basis (its own funds). Outside of GBTC, BTCO has been the only ETF to show any daily outflows, minus 4 trading days across HODL and BTCW (which totaled $15.9M in outflows). Our guess is that Galaxy purchased shares of BTCO at or near the beginning of ETF trading, resulting in inflows for BTCO, and now has been selling, resulting in outflows for the fund.

Market Update

Bitcoin set a new all-time high again this week, hitting $73,835.57 on Coinbase intraday on Thursday before undergoing a correction. Price subsequently fell 11% to the $66K level and then rebounding a bit. This is the third time bitcoin has undergone a sharp sell off after hitting a new all-time high. Bitcoin’s price rallied sharply back the previous two times, driven by strong ETF inflows. While we will have to wait until tonight to see what the latest fund flows were, the ETFs on Thursday “only” took in a net $132.5M, the lowest daily tally since March 1st.  MicroStrategy priced $525M of converts this morning and could be a source of spot demand in the short term.

While bitcoin was up 2.3% on the week, other asset classes were mixed amidst higher-than-expected inflation readings. Equities were down, with the S&P 500 was off 0.1% and the Nasdaq Composite fell 0.9%. Bonds fell as well, with investment grade corporate bonds down 1.1%, high yield corporate bonds down 0.2%, and long-term US Treasuries fell 3.0%. Commodities were up, however, with oil up 3.0% and gold up 0.1%.

Important News This Week


Bernstein Is 'Now More Convinced' About Bitcoin Hitting $150K After Massive Rally - CoinDesk

Grayscale Plans Low-Fee GBTC Spinoff: The Bitcoin Mini Trust - CoinDesk

Bitcoin Runes Are Coming—And Xverse Wallet Is Getting Ready - Decrypt

Layer 1 Foundation Announces New BRC20 Governance Structure - Twitter

El Salvador Moves $400M BTC Into Cold Wallet, More than Doubling Known Holdings - CoinDesk

$190B Wealth Manager Greenlights 4 Bitcoin ETFs for Allocators - Blockworks

Legal, Regulation, and Taxation:

Coinbase Files Brief in Challenge to SEC's Denial of Rulemaking Petition - Twitter

Craig Wright Not Satoshi, Didn't Author Bitcoin Whitepaper, Judge Rules - CoinDesk

Bitcoin Receives Praise from Trump - CoinDesk


Bitcoin Miner Revenue Hits All-Time High Amid Price Surge - The Block

MicroStrategy Buys More Bitcoins With Convert Proceeds - Twitter

CoinShares Snaps Up Valkyrie Funds—Along with Its Bitcoin ETF - Decrypt

Crypto Exchange Binance Spins Off Binance Labs Venture Capital Unit - Bloomberg

Upcoming Events

Mar 20 - FOMC rate decision

Mar 29 - March CME expiry

April 21 - Bitcoin block reward halving

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