The News Block #20 (01/16/2024)
Billions in Spot Bitcoin ETF Trading Volume, Why Bitcoin's Price Fell, BlackRock & Fidelity Lead Race, Vanguard Restricts Clients from Bitcoin
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Eleven Spot Bitcoin ETFs Successfully Launch:
Many expected the launch of the newly-approved 11 spot Bitcoin ETFs to break records, and it did not disappoint.
Collectively, the ETFs saw $4.6 billion in trading volume in their first day of trading alone, with Grayscale’s GBTC leading the way with $2.3 billion in volume.
Bloomberg Intelligence Senior Analyst Eric Balchunas called this trading volume a “huge success.”
However, trading volume only tells part of the story here because it includes both selling and buying volume. The real question is, “What percentage of the total volume was money flowing into these ETFs?”
In the first two days of trading, all of the Bitcoin ETFs combined saw $1.4 billion in inflows. This was, without a doubt, an impressive showing.
In my previous News Block issue, I touched on how important the race for liquidity is for these ETF issuers. Many analysts were laser-focused on which of these firms would attract the most capital right out of the gate, which would give them an advantage to eventually becoming the go-to Bitcoin ETFs for years to come.
As the data trickled in, we got to see who was leading the race. Below is the leaderboard after the first two days of trading from Balchunas.👇
After two days, the leaderboard stands as: 1) BlackRock, 2) Fidelity, 3) Bitwise, 4) Ark/21 Shares, and 5) Franklin Templeton.
There was a tremendous amount of interest and volume around these products, with a ton of positive mainstream media coverage and headlines.
No media appearance gained more attention than BlackRock CEO Larry Fink’s interview on CNBC, where he described Bitcoin as an “asset that protects you.”
It wasn’t too long ago when Fink was an outspoken critic of Bitcoin, but now it appears like he’s done his homework and sees Bitcoin as a new asset class.
And with BlackRock leading the inflows early on, its clients are now better positioned to protect their wealth for the long haul. After only two days of trading, BlackRock now holds nearly 11,500 BTC on behalf of its clients.
In total, all of the ETF providers together bought more than 20,000 BTC on Thursday and Friday alone. To put this into perspective, at the current issuance rate, 900 new bitcoins are mined every day. This means that if the rate of these inflows continues, these ETF issuers will be buying significantly more bitcoin every day than what miners currently produce.
This supply and demand dynamic will only become more stark once the halving event occurs in April, when Bitcoin’s issuance rate will be cut in half from 900 BTC/day to 450 BTC/day.
This goes to show why so many are excited about how much new demand will come to Bitcoin through these products in the coming years as its adoption grows.
ETF Inflows Were Good - So Why Did Bitcoin’s Price Decline?
One possible explanation for the lackluster price action post-ETF launch has to do with Grayscale.
Grayscale notably saw more trading volume than the rest of the ETFs combined on the first day of trading, but it turns out a majority of that volume consisted of outflows.
In the first two days, GBTC saw $579 million in outflows as investors presumably fled the high annual fee for cheaper alternatives.
Skybridge Capital Founder Anthony Scaramucci attributed Bitcoin’s price decline over the last week to investors dumping GBTC for other ETFs with lower fees.
When investors sell GBTC, this results in Grayscale having to sell the underlying Bitcoin, creating sell pressure.
If a portion of these outflows are indeed moving to cheaper ETFs, then this could be seen as capital shuffling around and should only temporarily impact the price, but it’s impossible to know just how much of these outflows are being recycled into other Bitcoin ETFs, and how much of it was simply investors selling.
Furthermore, due to slower settlement times in traditional finance, it will take a couple of days for investors to buy back in as they sell GBTC, move into cash, and then purchase an ETF. We should have more information about these flows in the coming days. However, it seems logical to conclude that this at least contributed to Bitcoin’s recent price decline.
It was difficult to predict how Bitcoin’s price would react to these ETFs launching in the short term. A reasonable expectation was that there would be more volatility, and that’s exactly what’s been playing out.
In my opinion, people overestimate what these ETFs will do for Bitcoin in the short term but underestimate their impact in the long term.
Vanguard Restricts Its Client From Bitcoin Products:
In true Bitcoin fashion, these approvals did not come without their fair share of drama. Soon after they began trading, many investors were shocked to learn that they could not purchase the products in their brokerage accounts.
It turns out that several major firms, such as Merrill Lynch, UBS, Citi, Edward Jones, and Vanguard, are all currently restricting their clients from buying Bitcoin ETFs on their platforms.
Now, some of this can be attributed to these firms just taking time to approve and onboard new ETF products. These institutions need to do proper due diligence before listing a new product, and some like to wait and see how it performs for several months before making it available to their customers.
However, one of these firms appears to be taking a more philosophical stance against Bitcoin.
Vanguard, the second-largest asset manager in the world, issued a statement on Bitcoin ETFs shown here:
Vanguard then doubled down on its stance by removing the trading of Bitcoin Futures ETFs, which were previously available on its platform.
This led to Vanguard going viral for all the wrong reasons as Bitcoiners left the platform in droves and transferred their assets to other firms, like Fidelity, that better align with their values and support Bitcoin.
Fidelity took the exact opposite approach as Vanguard. Just take a look at its homepage:
This is the game theory of Bitcoin playing out at the Wall Street level. The firms that embrace this new monetary technology will reap the benefits. Those who see Bitcoin for what it is, an asset to build long-term wealth, will gain an advantage over their competitors and are more likely to thrive in the future.
As the saying goes, everyone gets Bitcoin at the price they deserve. Apparently, Vanguard’s price is higher, but they will come around eventually as Bitcoin’s performance and value proposition become impossible to ignore.
When that time comes, I, for one, will welcome them with open arms.
Until next week, keep stacking.
- N₿
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NEW: SEC Commissioner Hester Peirce on Spot Bitcoin ETFs, Crypto Regulation, and Evaluating Digital Assets
SEC Commissioner Hester Peirce was appointed by President Donald J. Trump to the SEC and was sworn in on January 11, 2018. Prior to joining the SEC, Commissioner Peirce conducted research on the regulation of financial markets at the Mercatus Center at George Mason University. She was also a Senior Counsel on the U.S. Senate Committee on Banking, Housing, and Urban Affairs, where she advised Ranking Member Richard Shelby and other members of the Committee on securities issues.
In this conversation, we discussed the approval of 11 spot Bitcoin ETFs and her criticism of the delays, the SEC's hacked X account ahead of the ETF approval, why the SEC took issue with in-kind redemptions, crypto regulation and how Bitcoin is different, and whether or not current securities laws are sufficient for evaluating digital assets.
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