Have Bitcoin ETFs Failed to Spur Institutional Adoption?

Key takeaways:

The approval of U.S. spot Bitcoin exchange-traded funds in January was celebrated as a coming of age for the top cryptocurrency.

But recent performances have elicited mixed reactions, with one analyst in particular arguing that, eight months later, the ETFs have failed to attract institutional capital.

Others point to the recent rebound in flows as a clear sign of ongoing institutional adoption.

Jim Bianco, founder of research outfit Bianco Research, torched a storm when he suggested that spot Bitcoin ETFs have not become the vehicles for traditional finance or “boomer” adoption that many had hoped for.

“It’s not an adoption vehicle,” Bianco wrote on X earlier in September. “Instead, [it is] a small tourist tool and on-chain is returning to TradFi.”

According to data from Bianco, the total assets across all the 10 funds plunged to $46 billion as of Sept. 9, from a peak of $62.6 billion in June.

This is the lowest that the Bitcoin ETFs have been since Feb. 12, Bianco said, having started off at $30 billion in January.

Crucially, the ETFs saw massive outflows during the eight days before Sept. 9 – a total of around $1 billion—with traditional finance players pacing the sales.

But that has started to change. In the week starting Sept. 10, spot Bitcoin ETFs saw net inflows of more than $568 million, according to data shared by Bloomberg senior ETF analyst Eric Balchunas.

Since then, investor interest has continued to rise. As of Sept. 23, net inflows are averaging $4.63 million per day, with a total of $17.7 billion of new money flowing into the products since January.

For Balchunas, spot Bitcoin exchange-traded funds are the “most successful ETFs in history.” He says the increase in cumulative net inflows is a sign that institutional investors have confidence in Bitcoin.

Total assets under management are once again chasing record highs. Since the eight-month lows reported by Bianco, on-chain BTC ETFs holdings have climbed nearly 30% to $59.2 billion, according to Dune Analytics. That’s 4.6% of Bitcoin’s total market cap.

Bitcoin ETFs Criticized as a ‘Small Tourist Tool’

Jim Bianco backed up his claims with data. He pointed to the average trade size of the ETFs, which dropped to $12,000, the lowest level since March. The macro investment researcher said the data shows that the primary buyers of Bitcoin ETFs are small retail investors, not institutional ones.

Compared to other exchange-traded funds, the average trade size of the Bitcoin ETFs “is a small fraction” of their sizes, he added. For example, the average trade size of the GLD exchange-traded fund, which tracks a gold index, is about $70,000, per data from Bianco Research.

One of the key indicators of the supposed failure of spot Bitcoin ETFs to attract mainstream TradFi adoption is the composition of their holdings. According to Bianco, investment wealth advisors hold only 9% of the Bitcoin ETFs’ shares outstanding, with another 12% held by hedge funds.

It means that around 85% of the holdings are not from traditional finance consumers, Bianco stated. He said this is backed by data from asset manager BlackRock, which revealed that 80% of inflows into its IBIT exchange-traded fund “are from self-directed online accounts.”

Bianco concluded that U.S. spot Bitcoin ETFs “have not become a tool for TradFi or boomer adoption,” adding:

“So far, these instruments have NOT lived up to the hype of “here come the boomers.” Very few have come, and those that have are holding losses and may now be leaving ($1B outflows over the last 8 days).”

Bitcoin ETFs Demand Rose in Bitcoin Terms

Bianco’s claims have been challenged by several market analysts. Juan Pellicer, senior researcher at crypto analytics firm IntoTheBlock, disagreed with Bianco’s view that there has been a decrease in demand for Bitcoin ETFs from institutional investors.

He said that measuring value in dollar terms, like what Bianco did, is not the “most accurate way to assess demand.” When measured in BTC terms, the values have remained steady throughout August.

As seen below in the chart from Dune Analytics, on-chain holdings of all the spot Bitcoin exchange-traded funds rose from around 921,000 BTC at the beginning of August to more than 933,000 BTC as of this writing. The figure rose 9% in the three months since June, showing that investors accumulated BTC as prices fell.

“We believe a large portion of [Bitcoin] ETF flows is driven by hedge funds engaging in basis trading,” Pellicer told Cryptonews via Telegram. He added:

Pellicer noted that while major wirehouses like JP Morgan and Bank of America “have been reluctant to fully embrace” crypto ETFs, Morgan Stanley now allows its advisors to recommend Bitcoin exchange-traded funds to clients. He expects to see an “influx of institutional capital” under the right market conditions and BTC price levels.

Bitcoin ETFs Are ‘Freaks of Nature’

Balchunas, the Bloomberg analyst, said that people are getting “freaked out” for nothing because spot Bitcoin ETFs have outperformed expectations. In a previous post on X, he said the funds reached $16.8 billion in net inflows between January and August, beating Bloomberg forecasts of $10 – $15 billion after one year.

Balchunas explained that the outflows of $787 million in one week (as cited by Bianco) represent just 1.5% of investors exiting their positions, while the remaining 99% “hung on tough.” On Sept. 3 alone, $287 million flowed out of the ETFs, the biggest such daily decline since May 1.

According to the Bloomberg analyst, some 1,000 institutions currently hold Bitcoin ETFs on their books, which is “unprecedented.” Blackrock’s IBIT exchange-traded fund alone boasts over 660 holders, the analyst said, with 20% of its shares reportedly held by large advisors and institutions. Contrary to Bianco’s pessimistic outlook, Balchunas expects IBIT’s institutional holders to double within 12 months. He marveled:

Balchunas said the ETFs could see more outflows if the BTC price, which is down 14% since its all-time high in March, continues to decline. But even if 10% ($5 billion) of investments were to exit the Bitcoin funds, 90% of investors would still be holding, he stated.

Matt Hougan, chief investment officer at Bitwise Investments, said investment managers “are adopting Bitcoin ETFs faster than any new ETF in history.”

He said wealth advisors have invested over $1.45 billion into Blackrock’s Bitcoin ETF known as IBIT, showing major institutional interest in the product.

Excluding all other inflows into the spot Bitcoin ETFs, IBIT’s $1.45 billion allocation from investment advisors would be the second fastest-growing exchange-traded fund launched this year, Hougan posted on X. More than 300 ETFs have been launched so far this year.

Nicky Maan, CEO of London-based Spectrum Markets, told Cryptonews:

‘It’s too early to say what the long term impact of specific product launches will be on this asset class as a whole – digital assets. What is clear is the strong and growing demand for gaining exposure to cryptocurrencies within a regulated environment, whether that is through regulated structures like ETFs or regulated trading venues. For the digital asset class to become mainstream – particularly for retail – it will need a regulatory framework to ensure transparency and long term market sustainability.”

For Bianco, the next best time to drive adoption among the “boomers” will be sometime in 2028, after the Bitcoin halving. Institutional adoption will also require “significant development of on-chain tools” like decentralized finance (DeFi), non-fungible tokens, and on-chain payments.

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