Are the wheels coming off the Spot Bitcoin ETF train?

Are the wheels coming off the Spot Bitcoin ETF train?

Spot Bitcoin ETFs saw a turnaround this week according to data from Farside. This data showed that Spot Bitcoin exchange-traded funds in the United States experienced $63.5 million in inflows from 1 May to 14 May. During the past two days alone digital asset investment products saw inflows totalling $166 million. Regionally, the US saw the majority of inflows, with incumbent Grayscale seeing the lowest weekly outflows since January. The Spot Bitcoin ETF products' cumulative total net inflow since their listings was $11.848 billion on 14 May. 

For Hong Kong ETFs, the situation appears, for now, to be the opposite to the US-based assets. Hong Kong’s Bitcoin exchange-traded funds posted the largest-ever net outflow on Monday, 13th May. As noted by, Bosera, ChinaAMC and Harvest Global’s Spot Bitcoin ETF funds posted net outflows of $32.7 million, with ChinaAMC’s Bitcoin fund coming in as the biggest loser on the day with $15.5 million in outflows, according to Farside Investors data. Spot Ether ETFs from the same issuers saw total joint net outflows of $6.6 million. Harvest Global and ChinaAMC tied for most outflows with $3 million each.

Like the rest of the market, EXANTE’s Professional and Institutional clients have been affected by the drops in Bitcoin over the past two weeks. The NAV or total value held for Spot Bitcoin ETFs was  -3.7% compared with the wider market at  -1.1%.

Nevertheless, there has been some recovery in Bitcoin with it rallying today following the drop in US inflation to well over $64,700, but it does appear that the slowdown in flows into the Spot Bitcoin ETFs in addition to the still high global interest rate environment, is causing some investors to be more hesitant. The number of outstanding contracts — or open interest — at the Chicago Mercantile Exchange (CME) Bitcoin futures market has fallen from April highs of 29.902 on 11 April to 27.077 on 14 May. Although the wider macro environment is anticipating a slowdown in inflation with rate cuts expected by the ECB, Bank of England, and latterly the Fed, Bitcoin volatility will likely continue as global geopolitical risks rise through this year's election cycles.

However, despite the global outflows from Spot Bitcoin ETFs, it appears that EXANTE’s Professional and Institutional clients are still slightly increasing the number of positions they hold of Bitcoin ETFs relative to Bitcoin CFDs. Holdings of Bitcoin ETFs now stand at 50.2% on 12 May from 49.30% on 28 April. while Bitcoin CFD holdings have fallen from 46.75% on 28 April to 45.80% by 12 May. In short, EXANTE’s Professional and Institutional clients are still strong believers in Spot Bitcoin ETFs. Given that EXANTE’s Professional and Institutional clients have been keen adopters of Spot Bitcoin ETFs, the reasons for this change should be considered.

Will the train speed up or stop? 

It’s clear that movements around Spot Bitcoin ETFs appear to be undergoing a period of change. The initial excitement that came with their approval in January has slowly dissipated, but not disappeared. In fact, we are seeing more instances of institutional investors testing this asset class through small positions. According to a recent filing with the US Securities and Exchange Commission (SEC), Swiss banking giant UBS owns 3,600 shares of BlackRock's iShares Bitcoin Trust (IBIT). Another bank, Wells Fargo, is also testing the digital assets waters. In a filing with SEC the bank disclosed its exposure to Bitcoin ETFs through 2,245 shares of Grayscale's GBTC and 37 shares of ProShares Bitcoin Strategy futures ETF. The bank also revealed it held 52 shares in Bitcoin Depot Inc. Although the total value of its three Bitcoin-related investments was just $143,111: GBTC investments amount to $141,817, ProShares holdings sum to $1,200, and only $99 comes from Bitcoin Depot Inc., the fact that the bank is exploring this new asset class is a positive sign of potentially wider interest. That interest is also being shown by Canadian banks, with a 13F SEC filing by the Bank of Montreal, one of Canada’s largest financial institutions and part of the country’s “Big Five,” showing that the bank has exposure to four listed ETFs including Fidelity’s FBTC, Franklin Templeton’s AZBC, BlackRock’s IBIT, and Grayscale’s GBTC. It seems that Canadian Imperial Bank of Commerce also has exposure to several Bitcoin ETFs.

And it’s not just banks that are showing interest. According to Fidelity’s Vice President of Digital Assets, Manuel Nordeste, the company has started to engage with major pension funds about the possibility of investing in Bitcoin via ETFs. These US pension funds hold more than $4 trillion in capital, so even a small percent allocation could drive significant inflows. Even US states are now getting in on the action. The state of Wisconsin, which filed its quarterly 13F report with the Securities and Exchange Commission (SEC) on Tuesday, purchased 94,562 shares of BlackRock’s iShares Bitcoin Trust (IBIT) worth nearly $100 million in the first quarter of the year. The state’s investment board also purchased shares of Grayscale's Bitcoin Trust (GBTC) worth roughly $64 million. And, given that in February, lawmakers in Arizona put forward a resolution that encourages state pension plans to “monitor Bitcoin ETFs and other digital asset ETFs and consider including a digital asset ETF in their investment portfolios,” it definitely appears that, over the longer term, this new asset class will see significant inflows.

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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