Since the approval of Bitcoin ETFs, how much capital have these Wall Street institutions brought into the cryptocurrency market in just over a month?
Summary:
Forbes: The US dollar hegemony may be overturned after the launch of Bitcoin ETF, and BTC is unstoppable.
Background:
Monopoly of cryptocurrency custody, will Coinbase become the ultimate winner in the era of Bitcoin ETF?
Table of Contents:
After the approval of ETF, the net increase in Bitcoin holdings is 110,000, with a total holding scale of 37.21 billion US dollars.
Grayscale reduced its Bitcoin holdings by 175,000, while BlackRock acquired 127,000.
Coinbase custodies 637,000 Bitcoins, with custodial fees expected to exceed 30 million US dollars by 2024.
On January 11th, the US Securities and Exchange Commission (SEC) finally approved the application for Bitcoin ETF, and 11 Bitcoin ETFs were listed. The entire crypto circle welcomed a new round of gains with this news. After a brief drop from $49,000 to $38,500, the price of Bitcoin gradually recovered and successfully broke through the $53,000 mark.
So, is Bitcoin ETF really becoming the biggest driving force for the bull market in the entire cryptocurrency market? PANews conducted a comprehensive inventory of the Bitcoin ETF dynamics in this stage. How much capital has Bitcoin attracted since the launch of Bitcoin ETF in over 40 days?
Since the approval of ETF, as of February 25, 2024, the number of Bitcoins held by the 11 ETFs has increased from 619,491 to 732,549, with a total cumulative increase of 113,058 Bitcoins. The total holdings of Bitcoin ETFs are 732,000, with the management fund scale increasing from $28.59 billion to $37.21 billion, a cumulative increase of $8.6 billion.
Based on this data, the average holding price of Bitcoin ETF during the initial stage of approval is approximately $46,163, and the current average holding price is $50,803.
Currently, the holdings of Bitcoin ETF account for 3.73% of the total supply, which exceeds the amount of Bitcoins in 596,000 Binance wallet addresses (coincarp data). The current holdings of the top 30 spot Bitcoin exchanges are about 1.2 million (excluding the quantity held in ETF custody). From the net increase of 110,000 Bitcoins, it can be seen that the direct new circulation demand brought to the crypto market by ETF approval accounts for approximately 9.34%, which directly stimulates the price of Bitcoin to rise above $53,000.
Although the overall holdings of Bitcoin ETF have increased, the price of Bitcoin experienced a significant drop from $49,000 to $38,500 in the days following the approval of Bitcoin ETF on January 11th. The main reason for this sharp decline is the reduction in holdings by Grayscale.
Since investors do not directly purchase Bitcoin when buying ETFs, ETF issuers need to purchase corresponding spot Bitcoins from cryptocurrency exchanges such as Coinbase to match market circulation based on the demand of secondary market orders. Consequently, institutions like Grayscale, which previously had a discount on their Bitcoin GBTC, need to sell corresponding Bitcoin shares to eliminate the discount after the approval of ETF.
Prior to the approval of Bitcoin ETF by the US SEC, Grayscale had always been the largest holder of Bitcoin, and its Bitcoin holdings had always been increasing. However, this situation changed after the approval of ETF. Since ETF is a fund with redemption attributes, Grayscale’s Bitcoin holdings began to decrease rapidly, from 617,000 to 445,000.
There are several reasons for this: the most important one is that Grayscale charges a management fee that is 6 times higher than its competitors, based on the management fees announced for various ETFs. Most ETFs have management fees ranging from 0.49% to 0.19%, while Grayscale’s management fee remains at 1.5%, about 6 times that of its competitors. For large institutional clients investing in ETFs, Grayscale’s management fee is obviously not advantageous. On the other hand, Ark, which was among the top 10 GBTC holders, created its own ETF (ARKB) and transferred funds to its own ETF pool. Additionally, the disappearance of the discount arbitrage opportunity for GBTC also led many GBTC holders to transfer their positions.
In contrast, BlackRock’s IBIT, which started with 228 Bitcoins on January 10th, has increased to 127,000 Bitcoins. BlackRock is the world’s largest asset management company, with approximately $8.9 trillion in assets under management globally. Both in terms of client resources and brand effect, it is one of the most competitive players among many ETF products. Currently, BlackRock’s and Fidelity Investments’ Bitcoin ETF holdings have exceeded MicroStrategy’s 190,000 Bitcoins. Another ETF issuer, Fidelity, has also increased its Bitcoin holdings to 91,600, almost absorbing all the Bitcoins reduced by Grayscale. Therefore, from this perspective, the increase in Bitcoin ETF holdings has not yet shown significant effects, but is in a stage of competition among various issuers.
After the approval of ETF, various ETF fund companies seem to be the most popular enterprises in the market. In fact, this time, the one benefiting the most from the policy implementation is likely to be Coinbase, which has the opportunity to regain its leading position in the cryptocurrency exchange market by 2024.
Among all the issued ETFs, except for Fidelity, which self-custodies 91,000 Bitcoins, almost all other ETF funds have chosen Coinbase as the custodian for their Bitcoin holdings. Coinbase currently custodies 637,000 Bitcoins for ETF issuers, accounting for 86.9% of all ETF holdings, exceeding Binance’s 590,000 holdings.
According to Coinbase’s announced fourth-quarter revenue for 2023, which amounted to $953.79 million, surpassing the market’s general expectation of $822.36 million, its financial report stated that Coinbase’s customer asset custody revenue in 2023 was $20 million. Based on the lower industry fee rate of 0.1%, the current custodial funds of Bitcoin ETF of $32.4 billion will bring Coinbase $32.49 million in revenue in 2024, which will also increase as the ETF scale grows.
Apart from Grayscale, BlackRock and Fidelity Investments are also significant players among the current ETF issuers. BlackRock currently has 427 ETF products, with a total assets under management (AUM) of $6.5 billion for IBIT, ranking 82nd among BlackRock’s ETF products. As the market matures, IBIT is expected to continue to rise in the rankings. Another asset management giant, Fidelity Investments, closely follows with about $4.65 billion. Currently, the total assets under management of Grayscale, BlackRock, and Fidelity Investments account for 90.6% of the ETF market.
Based on the fee standards of these three companies, assuming the current market share is maintained, Grayscale’s management fee revenue is approximately $340 million (with a fee rate of 1.5%), BlackRock is about $16 million (with a fee rate of 0.25%), and Fidelity Investments is about $11 million (with a fee rate of 0.25%). Of course, if Grayscale continues to maintain its current management fee level, it may soon lose its current Bitcoin holdings.
Currently, the market expects Ethereum ETFs to be approved in 2024, with BlackRock also being a major promoter. As more and more cryptocurrencies enter the mainstream financial sector, this market will become more mature and full of possibilities.