As a seasoned investor with over two decades of experience in traditional markets, I must admit that I was initially skeptical about Bitcoin and its related investment vehicles like ETFs. However, witnessing the recent surge in inflows into Bitcoin ETFs has left me quite impressed.
On October 14, U.S.-listed Bitcoin exchange-traded funds experienced their largest one-day influx of investments in approximately 120 days.
Approximately 500 million dollars have been invested into Bitcoin’s funds, pushing its price up to an all-time high of $67,800 over the past three months.
ETF Store president Nate Geraci described the event as a landmark day for spot BTC ETFs, noting that they were approaching $20 billion in net inflows over the previous 10 months.
“Simply ridiculous & blows away every pre-launch demand estimate. This is NOT ‘degen retail’ $$$ IMO. It’s advisors & institutional investors continuing to slowly adopt,” he wrote.
Among various Bitcoin funds, the Fidelity Wise Origin Bitcoin Fund saw the most investment at approximately $239.3 million – its highest since June 4th. Coming in second was the Bitwise Bitcoin ETF with over $100 million, and third was BlackRock’s iShares Bitcoin Trust with an inflow of $79.6 million.
Comparably, the 21Shares Bitcoin ETF, also known as Ark, attracted approximately $70 million in investments, whereas the Grayscale Bitcoin Trust experienced its largest inflow in October since early May, totaling $37.8 million.
Factors driving the Bitcoin ETF surge
Lately, a significant increase in investments into Bitcoin Exchange Traded Funds (ETFs) is being linked to several combined factors, leading some analysts to label it as an “ideal combination” or “all-in-one situation” favoring cryptocurrency investments generally.
As a crypto investor, I find myself growing increasingly optimistic as we approach the upcoming U.S. election in November. The potential for regulatory clarity surrounding cryptocurrencies from both political parties has instilled a sense of confidence among investors. This could very well signal a return to Bitcoin’s bullish trend, making it an exciting time to be involved in this dynamic market.
As a crypto investor, I can attest to the fact that the rising optimism in global economic conditions is another significant driver behind the current surge in the market. This insight comes from Alicia Kao, who serves as managing director for the cryptocurrency exchange KuCoin, and she shared this perspective with CryptoMoon.
According to her perspective, the economic data published by multiple U.S. departments has helped alleviate worries about an impending recession. The Federal Reserve, in response, is now slowly reducing interest rates.
Furthermore, she pointed out that there’s a growing trend of hedge funds investing in digital assets. This surge is driven by improved regulatory guidance and the introduction of spot Bitcoin ETFs across various regions worldwide.
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Approximately 47% of conventional hedge funds currently invest in digital assets, which is a substantial rise from 29% in 2023 and 37% in 2022. Moreover, around two-thirds (67%) of these hedge funds plan to keep their investment in digital assets, while one-third (33%) aim to boost their digital asset portfolios by the end of 2024. These actions reflect increasing institutional trust and contribute to substantial investments into Bitcoin ETFs, as stated by Kao.
Institutional adoption driving demand for ETFs
It’s clear that individual retail demand plays a major role, but it’s equally important not to underestimate the impact of institutional investors in causing these unprecedented inflows.
According to Mithil Thakore, the CEO and co-founder of Bitcoin trading protocol Velar, it is the institutions that are primarily responsible for acquiring a significant amount of Bitcoin currently, mainly through Exchange Traded Funds (ETFs). Moreover, he commented:
“We’re now approaching something like $20 billion in BTC inflows, a figure it took gold more than four years to reach. Given the properties that have made Bitcoin the best-performing asset of the last decade, it’s no surprise that demand for it through ETFs has been so strong.”
In much the same way, Ben Caselin, who serves as the Chief Market Officer at VALR, opines that the recent increase in investments into U.S. Bitcoin Spot ETFs may primarily be due to Bitcoin’s ability to thrive in both periods of low and high-interest rates.
Furthermore, he thinks that as more institutional investors get involved, they will be the main force propelling investments into this area.
According to Caselin, the involvement of financial experts like financial advisors and pension funds has played a key role in pushing Bitcoin’s prices to record levels and even outperforming gold as a significant investment option. This suggests that Bitcoin is increasingly separating itself from conventional financial markets.
During the second quarter of 2024, there was a substantial increase of 27% in institutional adoption of Bitcoin ETFs, as 262 new companies joined the U.S. market for spot Bitcoin ETFs.
As of June 30, 2024, more than a thousand professional firms have invested in Bitcoin ETFs. However, Kao pointed out that the majority of these holdings are still owned by individual investors, with institutional investors controlling just 21.15% of the total assets under management (AUM). This figure represents a slight increase from the 18.7% held by institutions during the first quarter of 2024.
Bitcoin ETFs vs. traditional assets
The success of Bitcoin ETFs, particularly when compared to traditional asset classes like gold, has been nothing short of remarkable. Bloomberg senior ETF analyst Eric Balchunas noted that since the January launch of BTC funds, the asset has hit an all-time high five times.
This year, gold prices have reached new peaks approximately 30 times, but in contrast, Gold Exchange-Traded Funds (ETFs) have attracted just $1.4 billion in total investments, while Bitcoin ETFs boast over $20 billion in inflows.
Caselin contends that although gold has a longstanding tradition spanning over a thousand years as a reliable means of storing value, the contemporary digital age offers investors an alternative like Bitcoin, each with its distinct benefits.
“As a technology-driven asset, Bitcoin’s 15-year evolution aligns with contemporary financial trends, positioning it to attract capital more swiftly than traditional assets like gold.”
Contrarily, Arulian posits that Bitcoin functions as an unprecedented type of investment category, separate from traditional precious metals, yet shares numerous similar attributes with them.
Tristan Dickinson, the Marketing Chief of exSat Network’s Bitcoin docking layer, stated that Bitcoin Exchange-Traded Funds (ETFs) have set unprecedented records as the most thriving ETF – be it crypto or traditional – in American financial history. He believes these funds will surpass gold ETFs at an accelerated pace. This growth, Dickinson notes, is primarily driven by Bitcoin’s distinctive qualities, its impressive initial performance, high volatility, and lucrative potential for quick returns.
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2024-10-20 16:30