With this barrier gone, financial advisors, mutual funds, pension funds, insurance companies and retail investors can now receive Bitcoin exposure without hassling with direct custodianship. More importantly, a taint has been scrubbed off from Bitcoin, previously likened to “tulip mania”, “rat poison”, or “index of money laundering”.

Following the unprecedented domino of crypto bankruptcies throughout 2022, Bitcoin price reverted to November 2020 level of $15.7k by the end of that year. After that great FUD reservoir was drained, Bitcoin slowly recovered during 2023 and entered 2024 at $45k level, first visited in February 2021.

With the 4th Bitcoin halving ahead in April, and with ETFs setting new market dynamics, what should Bitcoin investors expect next? To determine that, one must understand how Bitcoin ETFs elevated BTC trading volume, effectively stabilizing Bitcoin’s price volatility.

Understanding Bitcoin ETFs and Market Dynamics

Bitcoin itself represents the democratization of money. Not beholden to central authority like the Federal Reserve, Bitcoin’s decentralized network of miners and algorithmically determined monetary policy ensures that its limited 21 million coin supply can’t be tampered with.

For BTC investors, this means they can be exposed to an asset that is not on an inherent trajectory of devaluation, which is in stark contrast to all existing fiat currencies in the world. This is the foundation for Bitcoin’s perception of value.

Exchange-traded funds (ETFs) present another democratization pathway. The purpose of ETFs is to track an asset’s price, represented by shares, and enable trading throughout the day unlike actively managed mutual funds. The ETFs’ passive price tracking ensures lower fees, making it an accessible investment vehicle.

Of course, it would be up to Bitcoin custodians like Coinbase to enact sufficient cloud security to instill investor confidence.

In the ETF universe, Bitcoin ETFs have demonstrated high demand for a decentralized asset that is resistant to centralized dilution. Altogether in the last 15 days, they have resulted in $29.3 billion trading volume against $14.9 billion pressure from Grayscale Bitcoin Trust BTC (GBTC).

This is not surprising. As Bitcoin price moved up due to Bitcoin ETF hype, 88% of all Bitcoin holders entered the profit zone in December 2023, eventually reaching 90% in February. In turn, GBTC investors were cashing out, placing a downward pressure worth $5.6 billion on Bitcoin price.

Moreover, GBTC investors took advantage of lower fees from the newly approved Bitcoin ETFs, shifting funds from GBTC’s relatively high 1.50% fee. At the end of the day, BlackRock’s iShares Bitcoin Trust (IBIT) is the volume winner at 0.12% fee, which will go up to 0.25% after a 12-month waiver period.

To place this in the context of the wider ETF universe, IBIT and FBTC managed to outpace iShares Climate Conscious & Transition MSCI USA ETF (USCL), launched in June 2023, within a month of trading.

This is particularly indicative given that Bitcoin’s history is one of attacks coming from the sustainability direction. It bears reminding that Bitcoin price fell 12%, in May 2021, shortly after Elon Musk tweeted that Tesla no longer accepts BTC payments precisely due to eco concerns.

During January, IBIT and FBTC found themselves at 8th and 10th place respectively as ETFs with the largest net asset inflows, headed by iShares Core S&P 500 ETF (IVV), according to Morning Star report. With daily ~10,000 BTC streaming into ETFs, this represents a greatly lopsided demand over ~900 BTC mined per day.

Moving forward, as the GBTC outflow pressure wanes and inflow trend increases, the steady stream of funds into Bitcoin ETFs is poised to stabilize BTC price.

The Mechanism of Stabilization

With 90% of Bitcoin holders entering the profit zone, highest since October 2021, selloff pressures can come from many sources, institutional, miner and retail. The higher inflow trend in Bitcoin ETFs is the bulwark against it, especially heading into another hype event – 4th Bitcoin halving.

Higher trading volumes generate higher liquidity, smoothing out price movements. That’s because larger volumes between both buyers and sellers absorb temporary imbalances. During January, CoinShares’ report showed $1.4 billion of Bitcoin inflows, together with $7.2 billion from newly issued US-based funds, against the GBTC outflows of $5.6 billion.

In the meantime, large financial institutions are setting new liquidity baselines. As of February 6th, Fidelity Canada set up 1% Bitcoin allocation within its All-in-One Conservative ETF Fund. Given its “conservative” moniker, this signals even greater percentage allocations in future non-conservative funds.

Ultimately, if Bitcoin taps into 1% of the $749.2 trillion market pool of various asset classes, Bitcoin’s market cap could grow to $7.4 trillion, bringing Bitcoin price to $400k.

Given that Bitcoin ETFs provide a consistent and transparent market price reference point, large aggregated trades reduce market impact on potential selloffs coming from miners. This is visible from FalconX Research, showing a great uptick in daily aggregate volumes, previously from average 5% heading into the 10 – 13% range.

In other words, the new Bitcoin ETF-induced market regime is reducing overall market volatility. So far, Bitcoin miners have been the main price-suppressing driver on the other side of the liquidity equation. In Bitfinex’s latest weekly on-chain report, miner wallets were responsible for 10,200 BTC in outflows.

This matches the aforementioned ~10,000 BTC inflows in Bitcoin ETFs, resulting in relatively stable price levels. As miners reinvest and upgrade mining rigs ahead of the 4th halving, another stabilizing mechanism could come into play – options.

Although the SEC is yet to approve options on spot-traded BTC ETFs, this development will further expand ETF liquidity. After all, the greater spectrum of investing strategies revolving around hedging increases liquidity on both sides of the trade.

As a forward-looking metric, implied volatility in options trading gauges market sentiment. But the greater market maturity that we will inevitably see following the introduction of BTC ETFs, we’re more likely to see a more stabilized pricing of options and derivative contracts in general.

Analyzing Inflows and Market Sentiment

As of February 9th, Grayscale Bitcoin Trust ETF (GBTC) holds 468,786 BTC. Over the last week, the BTC price went up 8.6% to $46.2k. Concurrent with the previous forecast, this means that BTC dumping is likely to spread out over multiple rallies ahead of the 4th halving and beyond.

By latest numbers provided by Farside Investors, as of February 8th, Bitcoin ETFs have racked up $403 million inflows, totaling to $2.1 billion. GBTC outflows totaled $6.3 billion.

From January 11th to February 8th, GBTC outflows have steadily decreased. Within the first week, they averaged $492 million. In the second week, GBTC outflows averaged $313 million, ending in $115 million on average during the third week.

On a weekly basis, this represents a 36% reduction on sell pressure from week one to two, and 63% reduction from week two to three.

As GBTC FUD unfolded up to February 9th, crypto fear & greed index elevated to “greed” at 72 points. This represents a revisit to January 12th, at 71 points, just a few days after Bitcoin ETF approvals.

Looking ahead, it bears noticing that Bitcoin price is reliant on global liquidity. After all, it was the Fed’s interest rate hiking cycle in March 2022 that caused the avalanche of crypto bankruptcies, culminating in the FTX collapse. Current fed fund futures project the end of that cycle either in May or in June.

Moreover, it is extremely unlikely that the Federal Reserve will veer off the money printing course. And at such occasions, Bitcoin price followed suit.

Considering the insurmountable national debt of $34 trillion, while the federal spending keeps outpacing revenue, Bitcoin is positioning itself as a safe haven asset. One that waits for capital inflows into its limited 21 million coin supply.

Historical Context and Future Implications

As a similar safe haven asset, Gold Bullion Securities (GBS) launched as the first gold ETF in March 2003 on the Australian Securities Exchange (ASX). Next year, SPDR Gold Shares (GLD) launched on the New York Stock Exchange (NYSE).

Within a week from November 18th, 2004, GLD’s total net assets rose up from $114,920,000 to $1,456,602,906. By the end of December, this decreased to $1,327,960,347. To reach BlackRock’s IBIT market value of $3.5 billion, it took GLD up to November 22nd 2005.

Although not inflation-adjusted, this indicates Bitcoin’s superior market sentiment compared to gold. Bitcoin is digital, yet it is grounded in a proof-of-work mining network spanning the globe. Its digital nature translates to portability which can not be said of gold.

The USG showcased this point when President Roosevelt issued Executive Order 6102 in 1933 for citizens to sell their gold bullions. Likewise, new gold veins are frequently discovered which dampens its limited supply status in contrast to Bitcoin.

In addition to these fundamentals, Bitcoin ETF options are yet to materialize. Nonetheless, Standard Chartered analysts project $50 to $100 billion in Bitcoin ETFs by the end of 2024. Moreover, large companies are yet to follow MicroStrategy’s lead by effectively converting shares sales into a depreciating asset.

Even 1% BTC allocations across mutual funds are poised to skyrocket BTC price. Case in point, Advisors Preferred Trust set up a 15% range allocation into indirect Bitcoin exposure via futures contracts and BTC ETFs.

Conclusion

After 15 years of doubt and aspersions, Bitcoin has reached the apex of credibility. The first wave of believers in sound money ensured that the blockchain version of it is not lost in the bin of coding history.

On the back of their confidence, up until now, Bitcoin investors constituted the second wave. The Bitcoin ETF milestone represents the third wave exposure milestone. Central banks around the world continue to erode confidence in money, as governments cannot help themselves but to indulge in spending.

With so much noise introduced into the exchange of value, Bitcoin represents a return to the sound money root. Its saving grace is digital, but also physical proof-of-work as energy. Barring extreme USG action to sabotage institutional exposure, Bitcoin could even overtake gold as a traditional safe haven asset.

This is a guest post by Shane Neagle. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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According to the Kaiko data, Bitcoin’s risk-adjusted returns were superior to traditional assets. Nvidia led with the highest returns on a risk-adjusted basis, while Bitcoin impressively trailed just behind, outpacing major traditional assets like the S&P 500, Gold, with its value surging over 160% in risk-adjusted terms.

Meanwhile, according to the IMF Crypto Cycle and US Monetary Policy study, 80% of variation in crypto prices and its increasing correlation with equity markets coincided with the entry of institutional investors into crypto markets since 2020. In particular, trading volumes by institutions on crypto exchanges grew by more than 1,700% (from roughly $25 billion to more than $450 billion) during the second quarter of 2020 and the second quarter of 2021. According to the study, the US monetary policy affects the crypto cycle, just like global equity cycles, but surprisingly, only the US Fed’s monetary policy matters, not the other major central banks – probably because crypto markets are highly USD-dependent.

Furthermore, the 2023 Institutional Investor Digital Assets Outlook Survey indicates that 64% of investors are set to up their stakes in the crypto sphere within three years, allocating up to 5% of AUM to crypto. It said a number of institutions made investments for the first time over the past year, while others increased their existing investments. While the study highlights a surge in crypto commitment from 41% of asset managers, only 27% of asset owners seem to be ramping up their stakes.

Although Bitcoin was born from the idea of spreading power equally, recent studies indicate that it’s slowly becoming dominated by a select few big players.

Changing Correlation Dynamics

Interestingly, Bitcoin moves in sync with the S&P 500 and Nasdaq, with an impressive correlation. Meanwhile, the correlation between Bitcoin and Gold has sharply decreased recently, contrasting with claims that investors see crypto as a safe haven or hedge against inflation, a role traditionally played by Gold.

Notably, Bitcoin’s correlation with Gold was positive at 0.83 on November 7, 2023, but decreased to -0.1 on January 10, 2024, before rebounding to a marginally higher positive level 0.14 on February 9, 2024. In the meantime, Bitcoin’s relationship with the S&P 500 saw a negative correlation of -0.76 on November 11, 2023, and then hit a positive correlation of 0.57 in January 2024. Ths shift from negative to positive correlation points to Bitcoin’s changing perception among investors.

The Nasdaq Composite, known for its technology and growth stocks, also displayed a variable correlation with Bitcoin. The negative correlation, of -0.69 on October 30, 2023, shifted to positive 0.44 in January. It seems traders are linking Bitcoin’s rhythm to the tech sector’s pulse, hinting at a new kinship in investment strategies.

When the correlation between Bitcoin and traditional equity markets like the S&P 500 and Nasdaq increases, while its correlation with Gold decreases, it suggests that Bitcoin is behaving more like a risk-on asset rather than a safe haven. When investors are feeling venturous, they often swing toward stocks and digital coins for the chance at juicier profits.

If institutional and retail investors are increasingly involved in both equity and cryptocurrency markets, their simultaneous buy and sell decisions could cause the price movements of these assets to align.

Spot Bitcoin ETFs getting the green light seem to be ramping up its charm for big-time investors, with a solid chunk already planning to boost their Bitcoin game. Bitcoin’s move into ETFs might make it act more like stocks since those funds are big players in the stock world.

Amidst these developments, the essence of Bitcoin and other cryptocurrencies, free from the confines of traditional financial systems, could be undermined. Moreover, these shifts could expose Bitcoin to the very systemic risks from which it was designed to escape.

Closing Thoughts

As we look at how spot Bitcoin ETFs might shake up Bitcoin’s role in the market and its current tie to stocks, we need to keep a sharp eye on balancing our excitement for more big players jumping in and the possible growth with staying true to Bitcoin’s core principle of not being centrally controlled. Bitcoin’s move toward a more centralized investment scene could stir the market, offering bright opportunities, but also tough challenges ahead. 

This is a guest post by Maria Carola. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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BlackRock, the world’s largest asset manager, has made a significant stride in the cryptocurrency market. The firm’s Bitcoin Exchange Traded Fund (ETF) Assets Under Management (AUM) has surpassed the $10 billion mark, outperforming the iShares Silver Trust. This milestone is a testament to the growing acceptance and adoption of Bitcoin and other cryptocurrencies in the mainstream financial industry.

Understanding Bitcoin ETFs

Before delving into the details of BlackRock’s achievement, it’s essential to understand what a Bitcoin ETF is. A Bitcoin ETF is a fund that tracks the price of Bitcoin, allowing investors to buy into the fund and participate in the Bitcoin market without actually owning the cryptocurrency. This provides a level of security and convenience that direct Bitcoin ownership does not offer, making it an attractive option for many investors.

BlackRock’s Bitcoin ETF AUM Growth

BlackRock launched its Bitcoin ETF in response to growing demand from investors for exposure to the cryptocurrency market. The fund has seen rapid growth, with its AUM surpassing $10 billion. This is a significant milestone, as it indicates a high level of investor confidence in the fund and in Bitcoin as an investment.

• The growth of BlackRock’s Bitcoin ETF AUM is a clear indication of the increasing acceptance of Bitcoin in the mainstream financial industry.

• It also reflects the growing demand from investors for exposure to the cryptocurrency market, which has seen significant growth and volatility in recent years.

Outperforming the iShares Silver Trust

Perhaps even more notable is the fact that BlackRock’s Bitcoin ETF AUM has outperformed the iShares Silver Trust. The iShares Silver Trust is one of the largest silver ETFs in the world, with an AUM of approximately $9.8 billion. The fact that BlackRock’s Bitcoin ETF has surpassed this is a clear indication of the growing interest in and acceptance of Bitcoin as an investment.

• The outperformance of the Bitcoin ETF over the iShares Silver Trust is a significant development, as it indicates a shift in investor preferences towards more volatile and potentially higher-return investments.

• It also suggests that investors are increasingly viewing Bitcoin as a viable alternative to traditional investments like silver.

Implications for the Future

The success of BlackRock’s Bitcoin ETF has several implications for the future. Firstly, it indicates that there is significant demand for Bitcoin exposure among mainstream investors. This could lead to increased adoption of Bitcoin and other cryptocurrencies, potentially driving up their prices.

Secondly, the outperformance of the Bitcoin ETF over the iShares Silver Trust suggests that investors are increasingly willing to take on more risk in search of higher returns. This could lead to increased volatility in the cryptocurrency market, but also potentially higher returns for investors.

Conclusion

In conclusion, the success of BlackRock’s Bitcoin ETF, as evidenced by its AUM surpassing $10 billion and outperforming the iShares Silver Trust, is a significant development in the cryptocurrency market. It indicates a growing acceptance of Bitcoin among mainstream investors and suggests a shift in investor preferences towards more volatile and potentially higher-return investments. As the world’s largest asset manager, BlackRock’s success in this area could pave the way for other financial institutions to follow suit, potentially leading to increased adoption of Bitcoin and other cryptocurrencies in the future.

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BlackRock, the world’s largest asset manager, is set to make history in Brazil’s financial market. The company is preparing to launch the country’s first Bitcoin Exchange Traded Fund (ETF) on March 1. This move is a significant milestone in the integration of cryptocurrency into mainstream finance, and it’s expected to have far-reaching implications for investors in Brazil and beyond.

Understanding Bitcoin ETFs

Before delving into the specifics of BlackRock’s Bitcoin ETF, it’s crucial to understand what a Bitcoin ETF is. An ETF is a type of investment fund and exchange-traded product, traded on stock exchanges. Bitcoin ETFs allow investors to invest in Bitcoin without having to deal with the complexities of owning the actual cryptocurrency. This makes it easier for everyday investors to gain exposure to Bitcoin while avoiding the technical challenges and risks associated with holding the digital assets directly.

BlackRock’s Entry into the Bitcoin ETF Market

BlackRock’s entry into the Bitcoin ETF market is a significant development for several reasons. Firstly, BlackRock is the world’s largest asset manager, with over $8.67 trillion in assets under management as of December 2020. The company’s decision to launch a Bitcoin ETF is a strong endorsement of cryptocurrency, which could encourage other financial institutions to follow suit.

• BlackRock’s Bitcoin ETF will be the first of its kind in Brazil, opening up new investment opportunities for Brazilian investors.
• The launch of the Bitcoin ETF could also stimulate further growth in Brazil’s cryptocurrency market, which has already been expanding rapidly in recent years.

Implications for Investors

The launch of BlackRock’s Bitcoin ETF in Brazil has several implications for investors. For one, it provides a new way for investors to gain exposure to Bitcoin, which has been one of the best-performing assets in recent years. In 2020, for example, the price of Bitcoin increased by more than 300%.

• Investors who buy shares in the Bitcoin ETF will have the opportunity to benefit from Bitcoin’s price increases without having to buy and store the cryptocurrency themselves.
• The Bitcoin ETF also provides a way for investors to diversify their portfolios. This is particularly important in times of economic uncertainty, as diversification can help to reduce risk.

Regulatory Considerations

While the launch of BlackRock’s Bitcoin ETF in Brazil is a significant development, it’s important to note that the regulatory environment for cryptocurrency is still evolving. In many countries, including Brazil, regulators are still figuring out how to regulate cryptocurrency, and there is a risk that changes in regulation could impact the value of Bitcoin and other cryptocurrencies.

Conclusion: A Significant Milestone for Cryptocurrency

In conclusion, the launch of BlackRock’s Bitcoin ETF in Brazil is a significant milestone for cryptocurrency. It represents a major step forward in the integration of cryptocurrency into mainstream finance, and it opens up new investment opportunities for Brazilian investors. However, as with any investment, it’s important for investors to do their research and understand the risks before investing in a Bitcoin ETF.

As the world’s largest asset manager, BlackRock’s decision to launch a Bitcoin ETF could encourage other financial institutions to follow suit, potentially leading to a broader acceptance of cryptocurrency in the financial world. However, the regulatory environment for cryptocurrency is still evolving, and investors should be aware of the potential risks.

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