Almost a month has passed since the introduction of spot Bitcoin ETFs in the United States. Since then, the price of Bitcoin has not seen significant movement, prompting an update on the developments within the ETF sector.
Although the impact of ETFs has so far not been overwhelming, it has been positive. Following their approval, the ETFs have attracted approximately 36,320 BTC worth of new funds, equivalent to over $1.5 billion. The total assets under management in spot Bitcoin ETFs now stand at about 655,506 BTC, or over $28 billion, representing roughly 3.34% of the current BTC supply.
However, the potential growth of these ETFs has been tempered by the influence of Grayscale’s GBTC fund, which has seen a substantial amount of selling by its investors. The conversion of Grayscale’s GBTC trust into an ETF played a significant role, particularly due to the substantial discount (over 50% in late 2022) enjoyed by GBTC investors. This discount has now been arbitraged, resulting in a high volume of share selling.
Furthermore, the transformation of Grayscale’s trust into a spot BTC ETF enabled the liquidation of significant holdings by the now-bankrupt crypto exchange FTX, which sold 22 million GBTC shares valued at nearly $1 billion. Additionally, the bankrupt crypto lender Genesis is reportedly looking to sell $1.4 billion in GBTC shares.
However, the expected decrease in Grayscale’s GBTC dominance due to ongoing outflows should contribute to market stabilization. Indeed, since the approval of spot Bitcoin ETFs, GBTC’s dominance has already fallen from 100% to 72.4%.
While Grayscale is experiencing a decrease in market share and outflows from its trust, other firms are witnessing positive inflows into their Bitcoin funds. Notably, the iShares Bitcoin Trust from BlackRock and the Fidelity Wise Original Bitcoin Trust have led the way, amassing over 130,000 Bitcoins in a single month. In total, around 180,000 Bitcoins are currently held outside the GBTC fund.
Another factor that has contributed to the cautious adoption rate of spot Bitcoin ETFs, as highlighted by Bloomberg, is the thorough due diligence undertaken by major trading platforms. For example, LPL Financial Holdings, one of the largest independent broker-dealers in the U.S., is currently assessing the newly approved Bitcoin ETFs. LPL Financial aims to complete its due diligence within three months, with a focus on the risk of ETFs being shut down if they fail to gather sufficient assets.
Bloomberg’s data reveals that 253 ETFs were closed in 2023, with an average asset value of $34 million, highlighting the caution exercised by financial institutions before offering these ETFs to investors.
As the situation with GBTC stabilizes and due diligence processes by large financial institutions conclude, we can expect more capital to flow into spot Bitcoin ETF products. Despite initial challenges, the prospects for broader market adoption are promising.