The 4 Unprecedented Performance Metrics of the Bitcoin ETFs and more
What has been remarkable about the Bitcoin ETF launch of January 10, 2024 is a mouthful!
SEC as the Starting Gun in the Bitcoin ETF Issuers’ Race
There has never been an SEC case of batch-processing ETF applications for a new asset. We have never had such a setup before.
The very first gold ETF was launched in 2004 by State Street Global Advisors — the SPDR Gold Trust (GLD). This was the first ETF to be backed by a physical asset — gold bullion — and it became one of the fastest-growing ETFs in history. It accumulated $3 Billion in one year.
The next physically backed gold issuer was Blackrock`s iShares (IAU) in 2005.
Silver ETFs followed suit with a two-year lag from GLD. Blackrock launched the first one — iShares Silver Trust (SLV) in 2006 and the next silver ETF was launched five years later — Aberdeen Standard Physical Silver Shares ETF (SIVR). Today, $SLV has c. $10 Billion in AUM and $SIVR just surpassed $1 Billion.
GLD is by far the largest commodity ETF of all time with $55 Billion and IAU has accumulated about half — $25 Billion.
For both gold and silver, it is clear that the first mover became a dominant player.
In the case of Bitcoin, we had the unique situation of approving nearly a dozen issuers at the same time and therefore the race is on to compete, accumulate assets, and become the most liquid large Bitcoin ETF issuer.
Because of these unique conditions — everybody at the start line at the same time — we may end up with more Bitcoin ETFs issuers grabbing substantial market share each.
These issuers are using classic tactics to compete. VancEck just announced it will cut its fees further to 20bps from 25bps (effective Feb 21). At launch, Blackrock and Arkinvest were charging 25bps and Franklin Templeton slashed their fees to 19bps (lowest in the market currently). These are tactics that will result in several issuers that don’t manage to grab sizable market share, to pull out of the market.
ETF closures are not a new phenomenon in the US market which has 3,500 ETFs. 2023 was a record year for ETF closures with a 52% jump from 2022. In 2023, there were 244 ETF closures with an average age of 5.4 years and average assets under management of only $54 million. They lost 4.8% on average over the trailing one year before liquidation.
Barclays’ liquidation of 23 exchange-traded notes under its iPath lineup which included commodities like coffee, copper, and sugar, was the largest category suffering the most in 2023.
Unlike the 2023 closures, with a high average (5.4 years), I believe that the Bitcoin ETFs that don’t accumulate enough assets in 2024 will close by 2025 at the latest, as their fees are already low and they will experience operational losses if they can’t scale.
Having said that, let’s not forget that this off-the-charts performance of these Bitcoin ETFs, has happened even though they are still not not available on all large wirehouse platforms. Vanguard, the industry giant, has taken a `no way` stance to not list them.
The accumulated assets to date after only 5+ weeks are a staggering amount of well over $10 billion and over $5 Billion (excluding flows to the Gemini`s Bitcoin Trust that converted to an ETF structure $GBTC after the SEC approval ).
Compare and contrast this, to the Gold ETF — $GLD which managed to accumulate $3 Billion after one year, and now Blackrock`s Bitcoin ETF — $IBIT alone has accumulated over $5 Billion in 5 weeks.
The top four new issuers to date are Blackrock, Fidelity, ArkInvest, and Bitwise.
The daily trading volume of the Bitcoin ETFs is off the charts!
The majority of inflows to date, have gone to BlackRock’s $IBIT ETF. The $5+ billion that the fund has received to date, account for over half of Blackrock`s total net inflows across all of its ETFs during this period. In early February, $IBIT broke another record when it first surpassed half a billion in daily trading volume.
Eric Balchunas, who is not a crypto native but someone who has dedicated his career to ETFs, reported that February 20th was another record day, as the trading volume of all Bitcoin ETFs surpassed $2 billion.
Boost in overall Bitcoin Liquidity
To date, there have been no flaws in the trading of any of the Bitcoin ETFs.
The boost in liquidity from these ETFs is remarkable. According to CryptoQuant data, these ETFs added market depth in the range of 30%-40% of that on centralized exchanges.
This liquidity may prove sustainable, once Growth ETFs/ funds or Tech ETFs/Funds start allocating to these Bitcoin ETFs, even if these are small amounts. In addition, corporate Treasuries of businesses unrelated to cryptocurrencies may also soon start allocating small amounts (for example, c. $5mil which is currently equivalent to 1,000 BTC). Tesla currently holds c. 9,700 BTC, Block holds c. 8,000 BTC, while Microstrategy`s current holdings are c. 190,000BTC [1] (Blackrock`s Bitcoin ETF currently holds c. 122,000 Bitcoins).
Already, I hear that Bitcoin trading volumes have doubled and, in some cases, quadrupled during the traditional peak trading hours which are 3pm-4pm EST. Another indicator of the impact of these Bitcoin ETFs on the liquidity of the underlying.
Micheal Saylor just said that he does not intend to sell
But for those that care about the price of Bitcoin in USD in 2024, the fact is that the demand for the Bitcoin `commodity` is 12.5 times higher (this only counting the demand from the Bitcoin ETFs) than what the Bitcoin network can mine. This puts upward pressure on the price and the upcoming halving mid-April will add more downward pressure on the supply.
This is not financial advice nor an endorsement of any of the ETF issuers.
[1] Data from https://bitcointreasuries.net/
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