Bitcoin ETFs: What are they and how do they work?
Justin Arzadon
6 minutes reading time
- Digital assets
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Bitcoin traded above US$52K for the first time in more than two years, ending the week higher along with the broader crypto market. Bitcoin was up 6.78%, while Ethereum jumped 10.16%. Bitcoin has regained a market capitalisation above US$1 trillion, with the total crypto market cap up to US$1.94 trillion, and bitcoin’s market dominance sitting at 52.2%.
| Price | High | Low | Change from previous week | |
| BTC (in US$) | $51,509 | $52,809 | $47,776 | 6.78% |
| ETH (in US$) | $2,787 | $2,859 | $2,474 | 10.16% |
Source: CoinMarketCap. As at 18 February 2024. Past performance is not indicative of future performance. Performance is shown in US dollars and does not take into account any USD/AUD currency movements.
Source: Glassnode. Past performance is not indicative of future performance.
Crypto news we’re watching
US driving demand
There are signs that the recent run in the bitcoin price is being driven by US demand. The two top spot bitcoin ETFs in the US, Blackrock’s iShares Bitcoin Trust and Fidelity FBTC, have raised just under US$10B of AUM since being launched a little over a month ago1. Blackrock’s Bitcoin Trust already sits in the top 5 ETFs in terms of inflows for 2024.
Crypto analytics firm CryptoQuant reported that its ‘Coinbase Premium’, which is a measure of the price difference for bitcoin on Coinbase compared to Binance, the leading exchange by trading volume, is at its highest since May 2023, with a reading of 0.12, suggesting “it could indicate US investors’ strong buying pressure in Coinbase.”
The founder of 10x Research, Marcus Thielen, noted that bitcoin’s price rally was predominantly driven by flows during US trading hours: “During the last 30 days, BTC has rallied +17%, with 11% of those 17% occurring during US trading hours.”
Crypto money laundering dropping
According to a recent report written by the blockchain data platform Chainanalysis, crypto money laundering dropped 30% in 2023. Crypto being sent from illicit addresses amounted to US$22.2 billion, which is down from $31.5 billion sent in 2022. They did note that overall transaction volume dropped last year, but the decline in money laundering activity was steeper.
The report also detailed the types of crypto services being used to launder crypto. The use of crypto exchanges and illicit service types such as crypto mixers or tumblers has declined from 2022; however, the use of blockchain bridges and gambling services increased2.
In a 2023 report, Deloitte wrote that about $2 trillion in illicit funds are laundered a year, suggesting that only about 1% is carried out with crypto3.
Coinbase soars on earnings
Soaring crypto prices helped Coinbase smash analyst estimates for the fourth-quarter. Earnings-per-share were estimated at $0.02, but Coinbase earned $1.04 according to FactSet data. Revenue was estimated at $826.1 million but came in at $953.8 million.
Fourth quarter activity picked up in anticipation of US spot bitcoin ETFs being approved last month. The exchange saw its volume double over the third quarter, coming in at $154 billion, ahead of the estimate of $142.7 billion.
Besides increased volume, Coinbase also benefited from the launch of spot bitcoin ETFs, as it was chosen as the custodial provider for eight out of the ten spot bitcoin ETFs4.
Coinbase is currently held in Betashares Crypto Innovators ETF (ASX: CRYP) (as at 18 February 2024).
On-chain metrics
Bitcoin (BTC): Fear and Greed Index
This metric is an indicator from Alternative.me that aims to capture investor sentiment in a single number by incorporating data from multiple sources. The index ranges from 0 to 100, where 0 denotes ‘extreme fear’, and therefore times of exaggerated negative investor sentiment. On the other hand, 100 means ‘extreme greed’ and is an indication of maximum FOMO.
According to data from Alternative.me, ‘extreme greed’ has kicked in at current levels.
Source: Alternative.me. Past performance is not indicative of future performance.
This metric shows the percentage of circulating supply in profit, i.e. the percentage of existing coins whose price at the time they last moved was lower than the current price.
According to data from Glassnode, at the current price, around 92.59% of coins are in profit and the overall health of the network is positive. Given the current health of the network, it is not surprising that 69% of all bitcoin have been held for one year or longer.
Source: Glassnode. Past performance is not indicative of future performance.
Altcoin news
The top-performing top 30 altcoin over the seven days to 18 February 2024 was Stacks (STX), returning just over 44%, and 560% over the last 365 days. Helping push the price higher is positive sentiment and adoption in the crypto space.
According to the Stacks website, the blockchain is “linked to Bitcoin by its consensus mechanism that spans the two chains, called Proof of Transfer. This enables Stacks to leverage Bitcoin’s security and enables Stacks apps to use Bitcoin’s state”5.
Investing in crypto assets or companies servicing crypto-asset markets should be considered very high risk. Exposure to crypto assets involves substantially higher risk when compared to traditional investments due to their speculative nature and the very high volatility of crypto-asset markets.
Investing in crypto assets or crypto-focused companies is not suitable for all investors and should only be considered by investors who (i) fully understand their features and risks or after consulting a professional financial adviser, and (ii) who have a very high tolerance for risk and the capacity to absorb a rapid loss of some or all of their investment. Any investment in crypto assets or crypto-focused companies should only be considered as a very small component of an investor’s overall portfolio.
References:
1. https://www.coindesk.com/markets/2024/02/15/bitcoins-rise-to-52k-is-driven-by-strong-us-demand-the-coinbase-price-premium-suggests/
2. https://www.chainalysis.com/blog/2024-crypto-money-laundering/
3. https://www.deloitte.com/global/en/Industries/financial-services/research/gx-global-framework-for-fighting-financial-crime.html
4. https://s27.q4cdn.com/397450999/files/doc_financials/2023/q4/Shareholder-Letter-Q4-2023.pdf No assurance is given that this company will remain an index constituent or will be a profitable investment.
5. https://watcher.guru/news/stacks-stx-surges-85-amid-crypto-rebound-eyes-3-next
Past performance is not indicative of future performance.
Off the Chain is published every second Tuesday. It provides the latest news on bitcoin and the rest of the crypto market, along with analysis and insights into the world of crypto.
It provides general information only and is not a recommendation to invest in any crypto asset, crypto-focused company or investment product.
