Although the inflow of funds into Bitcoin spot ETFs has exceeded expectations, reaching $10 billion in just two months, the speculation surrounding these funds remains uncertain. This article, compiled and written by Carbon Chain Value, is sourced from the founder of biancoresearch.
Introduction:
$47 billion fund inflow into Bitcoin? Cetera Financial opens up Baillie Gifford IBIT and other spot ETFs to clients.
Background:
Bitcoin hits the bottom at $50,000! Galaxy Digital founder: Spot ETF funds drive BTC to $100,000.
Table of Contents:
Fund flow situation
Average cost
What is the evidence?
Trading volume
Conclusion
When will we truly “test” the confidence of Bitcoin spot ETF buyers? The average purchase price is around $57,000. Only then will we know how strong these buyers really are.
I have always believed that Bitcoin spot ETFs have not seen a long-term strong boom of wealth management institutions rushing to buy. On the contrary, similar to artificial intelligence stocks (especially NVDA and $MSTR), a large amount of short-term trading and speculative (degen) funds have flooded into Bitcoin spot ETFs, surpassing $1 billion per day earlier this week.
If I am correct, as the saying goes in Tradfi, “ride the elevator up, ride the elevator down.” The influx of weak-handed speculative funds may quickly flow out, turning a correction into a collapse. And this wave of outflows (or tokens) must find buyers immediately at any price.
This may expose the design flaws of these Bitcoin spot ETFs (no physical transfer). If so, it is possible to undermine the commitment to long-term adoption of capital, and this will take years, or even longer, if the market begins to resemble an out-of-control casino.
First, let’s take a 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 chart below shows the daily flow.
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Some argue that GBTC should be excluded from the US dollar. In my opinion, a considerable 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 around 30 basis points). Therefore, it should be included.
I will also include a chart of the “x-GBTC” group, as shown below. Over $23 billion has flowed into Bitcoin spot ETFs excluding GBTC.
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Based on daily volume and price, we can fairly accurately calculate the average purchase price (cost) of all inflows (not exact, but close enough). For this, we take the Bitcoin spot price at 5:00 PM Eastern Time and average it with the daily inflow weighted.
As shown in the chart, the average purchase point (cost) of the $12 billion spot BTC is $57,600 (orange line). The bottom panel shows that these ETF holders have unrealized profits of $2.7 billion.
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Here is the x-GBTC version. The average purchase point (cost) is $54,600. The unrealized profit is $6.97 billion.
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This indicates that a 20% correction will wipe out all their unrealized profits. And then? Everyone likes to believe they are Hodlers. Perhaps, but the evidence I see is that they all ran.
First, it should be known that no one knows who is buying these ETFs or any ETF. We know they are buying, but are they retail investors, institutions, trading accounts, or long-term endowments? ETFs offer transparency in who is buying in exchange for openness, allowing anyone to buy. (So, while we have informed opinions about them, it is just speculation.)
Therefore, anyone claiming to be a wealth management firm is speculating (and if they are ETF providers, it is more like wishful thinking). Anecdotal conversations with wealth managers indicate that they are interested in keeping an eye on these ETFs but will not promote them to clients.
The only clients who buy through wealth managers are those directly from the clients. And these people are very, very few.
So why do I believe this is speculative money? The trading volume is astonishing.
As shown in the chart, the daily trading volume of the two spot ETFs (orange) exceeds that of $SPY (blue) or $QQQ (green). On March 15th, the trading volume of 10 Bitcoin spot ETFs was 486,230, surpassing the total of SPY and QQQ!
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Therefore, the average trading size of 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 bought in small amounts with high-speed trading by fast money. This is good during an uptrend but may be better during a pullback.
Bitcoin bulls in an upward trend say: When will you admit you were wrong? They confidently say 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, broker JMP Securities stated in a research report that Bitcoin spot ETFs could see $220 billion in inflows over the next three years, which means that if the multiplier effect of new capital is adopted, the price of BTC could double to $280,000.
JMP analysts stated that if their estimates of inflows prove to be correct, then cryptocurrency exchange Coinbase remains in a favorable position. According to Factse data, the brokerage raised its target price for the stock from $220 to $300, the highest among Wall Street analysts, while maintaining its “outperform” rating. As of March 14th, Coinbase shares rose 2.6% to $262.92.
JMP stated that Coinbase is well-prepared and has raised its target price for the stock 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 funds into 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 capital allocation process.”
My answer is simple: let’s see what happens in the next 20% correction when their unrealized profits disappear.
Please take a look at the variant of the chart below.
In the first month of Bitcoin spot trading, BTC did correct 20%.
And 40% of the funds left.
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