In recent months, spot Bitcoin exchange-traded funds, or ETFs, have experienced substantial inflows that signal a fundamental change in investor sentiment, especially for institutional investors. On October 14, 2024, the spot Bitcoin ETFs in the United States witnessed the largest single-day inflow over 120 days at more than $556 million. At the same time, the period with this high was recorded when Bitcoin’s price rose above $67,800, the highest in over three months.
According to president of the ETF Store Nate Geraci, this marked the “landmark day” for spot Bitcoin ETFs. He added that funds received net inflows amounting to some $20 billion in the last 10 months. Geraci stressed that most of these inflows went through institutional investors and financial advisers, a hallmark yet unseen with bitcoin investments so far.
Apparently, several high-profile giant Bitcoin ETFs dominated inflows this week. The largest took place with Fidelity Wise Origin Bitcoin Fund at $239.3 million, which is its largest since June 2024. Other big movers are indeed the Bitwise Bitcoin ETF at more than $100 million and BlackRock’s iShares Bitcoin Trust at $79.6 million. Ark 21Shares Bitcoin ETF and Grayscale Bitcoin Trust also followed up with large inflows at $70 million and $37.8 million, respectively.
Factors Behind the Surge in Bitcoin ETF Inflows
A number of factors led to these recent inflows of Bitcoin ETF, creating a “perfect storm” for investment in cryptocurrencies, according to some experts. One of them is the political and economic environment prevailing in the United States ahead of the U.S. election. Chris Aruliah, head of institution at the cryptocurrency exchange Bybit, said: “The election will boost confidence in investors primarily because both parties have made positive statements over cryptocurrencies. This anticipation for surety by the regulators fueled inflows further.”.
Political factors aside, macroeconomic shifts appear to be some of the most important drivers of interest in Bitcoin ETFs. “Economic conditions in the U.S. have improved to the point where the recession fear has dwindled down,” said Alicia Kao, managing director at cryptocurrency exchange KuCoin. “The Federal Reserve is slowly cutting interest rates and this is raising optimism in financial markets.”. This has been complemented with the rising hedge fund participation in digital assets, which has contributed to the rise in inflows in the ETF.
Kao emphasized that over almost half of the traditional hedge funds are now exposed to digital assets, doubled from past years. Furthermore, 67% of the hedge funds intend to maintain this exposure level, while 33% have planned to increase it by the end of 2024. The rapid and surging institutional confidence has become a primary driver of inflows into Bitcoin ETFs.
Institutional Adoption Driving Demand
Whether it is the retail or institutional investors, they have acted as the drivers of price changes within Bitcoin. However, nowadays, the demands behind Bitcoin ETFs are the result of the biggest demand drivers- those institutions. “Much of these inflows are being driven by institutional investors,” said Mithil Thakore, CEO and co-founder of Bitcoin trading protocol Velar. “These institutions are closing in on approximately $20 billion worth of inflows to Bitcoin ETFs-a value that gold managed to achieve just over four years ago.”
More and more institutional investors have come to the realization that Bitcoin is a certain asset class that can shine even under a low interest-rate environment and even at a high interest-rate environment. Also, more people have grown to become financial advisors and pension funds, among other institutional players. According to Ben Caselin, the chief market officer at VALR, institutional adoption has been important for Bitcoin’s getting to new highs and now establishing a place for itself as a legitimate asset class.
This argument was supported by data from the second quarter of 2024: adoption of Bitcoin ETFs by institutional investors increased by 27%, and more than 1,000 professional firms had the opportunity to hold Bitcoin ETFs in their books by mid-2024. To date, institutional investors remain a dominant proportion, holding 21.15% of total AUM, though retail investors still stand as the highest ratio of Bitcoin ETF holders.
Bitcoin ETFs vs. Traditional Assets
Well, it seems Bitcoin ETFs have emerged as almost the equivalent entity in modern times, akin to old gold after their success has struck a chord around the world. Gold has been coveted for thousands of years as a store of value, while Bitcoin has become a store of value within a few years. According to Bloomberg Senior ETF Analyst Eric Balchunas, Bitcoin ETFs went to all-time highs five times since it became launched in January 2024. For the same period, Inflows to gold ETFs were more modest at $1.4 billion.
With all its unique characteristics, today’s financial environment gives Bitcoin a great sense of attraction. Observations by exSat Network chief marketing officer Tristan Dickinson note that Bitcoin ETFs have already become the most successful ETF product in U.S. history and are well on their way to eclipsing gold ETFs by a wide margin. He refers to the very good track record of Bitcoin, high volatility, and the short-term potential for gaining as some of the causes.
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