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Institutional Investors Fuel Bitcoin's Bullish Surge

With the news that Bitcoin broke the $60K level for the first time since November 2021 effectively liquidating any prior thesis suggesting a major retracement before the next leg up, there is now no doubt that the bulls are firmly back in charge. Indeed, Bitcoin's price has rocketed over the past two weeks, standing at $63K at the time of writing after having traded below $53K as recently as February 15th. And it isn't hard to see why.

The spot Bitcoin ETFs have introduced extreme demand to what is still a comparatively small market. And while there are other factors coming to bear on price, the impact of this massive, singular demand source is starting to show.

In this article, we'll look at the performance of these Bitcoin ETFs since launch as well as other areas of institutional activity that are paving the way for the next major wave of adoption in digital assets.

US spot Bitcoin ETFs – the ultimate demand source

After nearly two full months of trading, the jury on the Bitcoin spot ETF is well and truly in. After what many viewed as a fairly inauspicious start, it did not take long before their demand momentum hit its stride.

Looking at the top post-launch performances for ETFs from the total pool of 5,535 launches over a 30-year period (Figure 1), we can see that four of the Bitcoin ETFs feature in the top 25 on this list. Blackrock’s Ishares Bitcoin Trust (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC) are now the most successful launches in 30 years. Each of these ETFs accumulated over $3 billion in assets in their first month of trading.

Figure 1: top ETF performances after 1 months of trading (AUM)

And there has been no slow down as we approach the end of the second month of trading. Just on February 27th The ETFs netted inflows of $677 million from volumes of $7.5 billion – more than double the previous record – and this is all happening as selling pressure from GBTC continues to slow. The multiplier effect of this demand is now coming to bear on price in a big way, with Bitcoin having gained nearly 25% in the last four trading days alone.

Figure 2: Bitcoin trades above 60K for the first time since November 2021

The Bitcoin ETFs collectively hold over 329,647 Bitcoin as of February 29 and Blackrock's IBIT alone is approaching $10 billion in AUM in under two months of trading, with Fidelity's FBTC already at $6.4 billion.

Figure 3: Bitcoin holdings of all Bitcoin ETFs (as of February 28, 2024)

Two data points provide additional context to this feat. First, only around 150 out of 3,400 active ETFs have AUM over $10 billion, with the vast majority of those launched over a decade ago. IBIT could hit the magic $10 billion inside of seven weeks.

Second, shortly before the SEC greenlit the Bitcoin ETFs, Bloomberg announced that their approval "could trigger $10 billion in inflows to Bitcoin ETFs in the first year". The fact that this has already been surpassed says everything you need to know about the degree to which the ETFs are presently gobbling up Bitcoin at a rate of 10x the daily supply issued by miners. Indeed, this supply/demand imbalance is proving to be the ratio to watch in global markets as we move closer to the halving in April (when new supply will be chopped in half).

RIAs are now queuing up to enter the Bitcoin market

Now that institutionals have a regulated product at their disposal, we are seeing more evidence that registered financial advisors (RIAs) are prioritising Bitcoin ETF due diligence to allow their clients to take up positions as the bull market rolls on.

For example, one of the largest independent broker-dealers in the US overseeing $1.4 trillion in assets, LPL Financial Holdings, announced in early February that it was examining the newly approved Bitcoin ETFs before making them available to their clients. According to LPL's VP, Rob Pettman, the firm just wants to "see how they work in the markets” first before they can be made available for nearly 19,000 independent financial advisers.

Here, Bloomberg has reported that spot Bitcoin ETF adoption is facing a bottleneck due to ongoing RIA due diligence processes despite issuers having an approved product for nearly a month, but as the LPL's announcement illustrates, RIAs are increasingly fast-tracking their DD process to not get left behind as the momentum continues in digital assets.

Case in point: Carson Group, an investment platform with $30 billion in assets under management, announced the approval of four spot Bitcoin ETFs on its platform on February 23rd, including IBIT and FBTC.

“We feel it is important to offer these products as a result of two of the largest asset managers in the industry”– Grant Engelbart, VP & Investment Strategist, Carson group

Additionally, on February 28th Wall Street giant, Morgan Stanley, announced they are "performing due diligence to add spot bitcoin ETF products to its brokerage platform" and on February 29th it was announced that both Bank of America Corp.’s Merrill arm and Wells Fargo & Co.’s brokerage now offer access to spot Bitcoin ETFs.

These activities spotlight the rising acceptance of the products by mainstream firms and underscore Bitcoin's bona fides as an asset class. It also reflects that, while TradFi firms have been slow to react due to regulatory uncertainty, technological adjustments, and risk perceptions, they are now prioritising Bitcoin ETF DD to allow their clients to take up positions as swiftly as possible as the bull market rolls on.

Cryptofication and the Microstrategy effect

There were no surprises over Reddit's revelations of moving into Bitcoin as it prepares to go public on the NYSE. As part of their filing, the social media firm disclosed that excess cash reserves had been invested in Bitcoin and Ethereum as well as Polygon "as a form of payment for sales of certain virtual goods.”

Credit where credit is due, this has Michal Saylor's fingerprints all over it, with MicroStrategy having been the first publicly traded company to purchase Bitcoin for capital allocation back in December 2020 in what TradFi decried as a crazy move at the time.

Now, this ‘cryptofication’ of major corporates – which is the act of firms drawing down dollar-denominated cash balances in favour of holding Bitcoin as a reserve asset, is developing into a trend. It not only reflects efforts to shore up their cash positions amid the continual debasement of the dollar, but it's also an explicit recognition of Bitcoin's investment potential.

Moreover, the recent Financial Accounting Standards Board (FASB) update that will allow corporations to report the "fair value" cost-basis of assets they're holding means that digital asset capital appreciation can now be reported, and not just capital losses as was the case previously. This will incentivise corporations to adopt Bitcoin as a treasury asset – the benefits of which Michael Saylor hasn't at all been quiet about pointing out.

These factors taken together mean we're unlikely to have even scratched the surface of what this could mean for Bitcoin's longer-term adoption.


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Disclaimer: The information contained within is for educational and informational purposes ONLY. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision. No commercial relationships or partnerships exist with any of the technology providers, manufacturers, or suppliers herein.

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