Bitcoin price is rising, but where are the new investors?

In the year In the week ending February 17, digital asset products revenue of $2.45 billion and Bitcoin (BTC) price appreciation helped industrial assets under management restore the December 2021 level of $67.1 billion. According to a Feb. 19 CoinShares blog post, most of the investment was made through Bitcoin's spot exchange-traded funds (ETFs) in the United States. However, some data suggests that Bitcoin ETF inflows are not driven by new inflows, much less than previously thought.

Considering the success of the ETF's launch, one must consider whether the 21.8% price gains on February 19 will meet investor expectations. Despite this success, Bitcoin's price is still nearly 25% above $69,000, and entities that have announced billion-dollar purchases in Bitcoin in the past have generated very strong price reactions. Therefore, one would expect an even greater impact from the $4.93 billion in net income from ETFs as of January 11, according to BitMEX research data.

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— BitMEX Research (@BitMEXResearch) February 17, 2024

Bitcoin shows strength in the absence of retail investors

Although it is impossible to determine how each market participant evaluates the position or what is the reason behind the selling pressure, there are two possible explanations for Bitcoin's limited performance. But one thing is certain: if the net income of about 5 billion dollars entered the space Bitcoin ETFs, then the same amount would have been sold by the previous owners. Some analysts and investors confuse daily supply with trading supply, but those are not necessarily the same thing.

Currently, the Bitcoin network gives miners an incentive of 900 BTC per day, which amounts to $328 million per week. By comparison, Bitcoin's daily adjusted volume is over $10 billion, so the coins ultimately subsidized are not representative of pricing, with more than 93% of the maximum 21 million supply in circulation. In short, the flow of miners cannot be the culprit behind Bitcoin's limited upside post ETF launch.

Tesla announced a $1.5 billion position in Bitcoin on February 8, 2021, following a 48% rally in 14 days. Interestingly, the starting point, $38,870, was only 7.5% below the previous all-time high 30 days ago, meaning that the market somehow maintained the move, but the event itself pushed Bitcoin's price to a much higher level. This shows how little impact ETF launches in the US have had on price action.

Advantages of the position Bitcoin ETF encourages migration from previous owners.

There are many benefits for Bitcoin holders to move their positions into ETF positions. In this sense, part of the proceeds may be offset by investors who sold equivalent positions. Reasons include tax efficiency, as gains/losses in the stock market are realized through ETF instruments, simple fiscal reporting, easy estate planning and reduced protection risks. Of course, some investors appreciate the benefits of direct investments through their own wallets, but for many, this is not the case.

Additionally, the growing interest in CME Bitcoin futures signals that the ETF flow portion of the spot could have been matched by a similar short (sell) position. Arbitrage desks charge the price difference between fixed-month contracts and regular spot prices, commonly known as the premium or base rate. A ‘cash and carry' trade involves buying a spot and selling futures contracts at a price.

Related: Greyscale's GBTC exits reach $7B, but data shows slowing

Therefore, some of the 26,500 BTC open interest increase on the CME in the 14 days to February 19–more than $1.3 billion at current prices–may be related to spot ETF inflows, though neutral in futures short positions.

Regardless, there is no way to draw Bitcoin ETF data from the spot, and the longer the flow continues, the more likely a supply shock will push Bitcoin above $60,000.

This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.