EXANTE’s Institutional Investor and Professional clients have had faith in these new products from the beginning. They went in wholeheartedly and have continued to do so. They initially changed their ETH-linked product allocation for 4.5% of these new ETFs, reducing their ownership of ETPs by 1.5% and CFDs by 3.1%. Over the past few weeks they’ve continued to rebalance their ETH-linked product allocations, increasing their ownership of new Spot Ethereum ETFs to 18% and reducing their ownership of ETPs to 9.8% from 12.5% before the new Ethereum ETFs came into being. They’ve also reduced their ownership of ETH CFDs from 87.5% prior to the Spot Ethereum ETF listing, to 72.2% now.
EXANTE’s Institutional Investor and Professional clients have also continued to increase the number of positions they hold in these new Ethereum-linked products. They’ve increased their positions in the Spot Ethereum ETFs from 5.10% at the very beginning of trading on the 23rd July to 18.98% as of the 18th of August. This is despite Ethereum’s 40% decline following the launch of Spot Ethereum ETFs. However, as noted by Cryptoslate, there has been divergent performance among Ethereum ETFs with BlackRock’s iShares Ethereum Trust becoming the first among a cohort of 11 issuers to cross the landmark $1 billion in net inflows.
Although cryptomarkets were hit by August’s market volatility as markets reacted to a growth scare over the US economy, it appears that one of the factors that has been putting downward pressure on Bitcoin prices, namely US government sales, may be abating. We have also seen increasing focus on cryptocurrency in the wider economy by US Presidential candidates. Republican nominee and former President Donald Trump promised thousands of Bitcoin enthusiasts at the Bitcoin 2024 conference in Nashville, Tennessee that as president he would make America “the Bitcoin superpower of the world.” He has also promised to fire SEC chair Gary Gensler, who has been an ardent critic of cryptocurrency products, and create a strategic Bitcoin reserve. Wyoming Senator, Cynthia Lummis, a Republican, has suggested draft legislation that the purchase of Bitcoin for a new strategic reserve would be financed partly by revaluing Federal Reserve's gold. Under this plan the Treasury secretary would establish a "Bitcoin Purchase Program" of up to 200,000 BTC a year over a five-year period, for a total of 1 million. In addition there is also, as noted by Bloomberg news, a signal from the Bitcoin derivatives market that points to the growing risk of a “short squeeze” that can stoke sharp rallies, according to cryptocurrency specialist K33 Research. The metric is the funding rate for Bitcoin perpetual futures, which helps to gauge how bullish or bearish speculators are. Open interest has also been rising this week according to CME Group Inc. data which may be an indication of re-engagement by US institutional investors.
How has this affected Bitcoin ETFs?
The cumulative total net inflow for US Spot Bitcoin ETFs was $17.52 bn on 20 August according to SoSoValue data. US Spot Bitcoin ETFs saw $88.06 million in net inflows on Tuesday, marking their fourth consecutive day of positive flows. Although the trade volume of Spot Bitcoin funds remains significantly lower than the range seen in March, EXANTE’s Professional and Institutional clients are continuing to invest in new Spot Bitcoin ETFs and are increasing their position in these ETFs relative to other Bitcoin-related products, increasing their holdings of Spot Bitcoin ETFs from 48.2% on the 28th of July to 48.7% by 18th August.
The change in Bitcoin valuation and the impact on Spot Bitcoin ETFs is reflected in the holdings of EXANTE’s Professional and Institutional clients, who saw a positive impact on the value of their holdings following Trump’s speech along with other global holders of Spot Bitcoin ETFs. However, as Bitcoin and other cryptocurrencies were adversely affected by the rapid rise in volatility across US and European stock markets earlier this month, they were disproportionately affected. Nevertheless, around 80% of the past fortnight’s spot Bitcoin ETF trading days have had positive flows, despite Bitcoin seeing sideways price action.
Although the value of Bitcoin is down approximately 2.3% over the past 7 days, it remains up over 40% YTD. And, as noted by Coindesk, Bitcoin's price fell 12% in the second quarter, but this didn't stop institutional investors from significantly increasing their allocation to Spot Bitcoin ETFs. Goldman Sachs purchased $418 million worth of bitcoin funds with its biggest position being $238 million ownership in shares of BlackRock’s iShares Bitcoin Trust. The bank also owns shares in spot funds from Grayscale, Invesco, Fidelity and others. A report issued on 19th August by Bitwise indicated that the aggregate number of institutional investors holding Bitcoin ETFs in the second quarter rose 14% from the first quarter, to 1,100 from 965. Institutional ownership of US Spot Bitcoin ETFs rose to 24% by the end of the second quarter of 2024, according to analysts from H.C. Wainwright. This is up from 21.4% in the prior quarter, according to Q2 13-F filings and data aggregated by Coinbase. Bitwise observed that these crypto ETFs have been adopted by institutions "at the fastest rate of any ETF in history." This strongly indicates that EXANTE’s Professional and Institutional clients, by being more positive about the longer term upward trend related to Bitcoin products than the global average, and continuing to invest their holdings in this instrument, have seen positive returns historically and, if demand by institutional investors continues to grow, are likely to see those very positive returns again.
With the US looking increasingly likely to have a more positive approach to cryptocurrencies following the November election, we may see the development of even more crypto ETFs. Much will likely depend on the growth trajectory of the US and global economy, including continued growth in the tech sector. In addition, markets will likely continue to be swayed by changes in Fed policies. As the Fed is looking increasingly likely to begin its rate cutting cycle at its September meeting, and as traders await a key speech by Federal Reserve Chair Jerome Powell at Jackson Hole this Friday, things may yet still prove positive for crypto ETF holders.
While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.
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