Last week marked a significant milestone in the Bitcoin markets, with the long-awaited approval of 11 spot Bitcoin ETFs by the SEC, a fiercely crypto-skeptical agency. It generated a wave of enthusiasm across crypto Twitter and other media, leading to a flurry of optimistic predictions.

However, instead of skyrocketing, the price of Bitcoin took a 12% nosedive.

Does it mean that the ETFs’ launch failed? Quite the contrary.

The launch was nothing short of spectacular, with almost $10 billion in trading within the first three days. Bloomberg’s ETF observer Eric Balchunas put that into perspective, mentioning that the 500 ETFs launched in 2023 have generated only $450 million in volume by today.

This success notwithstanding, Bitcoin ETFs are different, and it’s important to understand their differences to analyze the overall dynamics.

The first numbers

Not all ETFs were made equal. Notably, GBTC is converted from the closed trust run by Grayscale, a pioneer that had until recently enjoyed a near-monopoly on crypto-based financial products. Grayscale charged an impressive 2% in fees, while most of the newborn ETFs have set their fees at around 0.25%.

It didn’t come as a surprise that its clients started withdrawing their funds. GBTC saw a staggering $1.1 billion outflow in the three days following the approval, and it is responsible for over half of the overall spot Bitcoin ETF trading volume.

Some of the former GBTC investors might have transferred the funds into ETFs with lower fees, and some might have lost their interest after losing the possibility to trade its premium differences (now historically low). We cant’ know the exact numbers, since in traditional finance, most movements stay opaque.

However, we can see that other funds have witnessed a combined inflow of almost $2 billion in the first three days, showing that new cash is flowing into Bitcoin ETFs. The net result is a positive influx of $782 million, led by BlackRock's $IBIT and Fidelity's $FBTC, both channeling a massive $1.2 billion (source: Eric Balchunas, Bloomberg).

What’s next?

Bitcoin ETFs are only starting to influence the market, and when the initial hype subsides, the real groundwork will begin.

BlackRock has already laid the foundation for this work, releasing a “boomer ad” for its Bitcoin ETF. Laughed off by many as boring, it might be just what BlackRock’s core clientele needs: unlike the over-excited crypto bros or Hollywood actors in futuristic settings, it features its Head of Alternative ETFs who calmly informs the viewer about the firm’s Bitcoin ETF.  BlackRock’s CEO Larry Fink has also made his appearance on TV, saying that Bitcoin was “an alternative source for wealth holding”, which, unlike gold, cannot be manufactured beyond the fixed cap.

The world’s biggest asset manager is lending its credibility to Bitcoin, and this could potentially change the minds of some of the wealthiest investors.

Traditional traders will also have more products to play with: ProShares and RexShares have already filed for several leveraged spot Bitcoin ETFs. Analysts expect the arrival of options based on Bitcoin ETFs as well.

However, not all TradFi actors are happy with the new asset class entering their domain. Vanguard, an American investing giant with over $8 trillion of assets under management, has taken an aggressive anti-Bitcoin stance. The firm not only refused to offer the new spot Bitcoin ETFs on its platform, it also stopped accepting Bitcoin futures ETFs. The company explained that Bitcoin ETFs did not “fit with Vanguard’s investment philosophy”, sparking heated debates on social media.  

Overall, we can say that spot Bitcoin ETFs were a success. Shortly before their approval, analysts from Standard Chartered predicted that Bitcoin spot ETFs would see over $1 billion inflows in the first three months. As it happened, this number was exceeded in the first three days. If we were to listen to the rest of the bank’s forecasts, Bitcoin ETFs would see up to $100 billion of inflows, and Bitcoin itself hit the $100,000 mark by the end of the year.

The recent BTC dip could have been a “Buy the rumor, sell the news” episode, and market analysts now turn their gaze to other events that might influence the asset’s price, such as the upcoming halving, expected in April.

Written by D.Center