Bitcoin ETFs: What are they and how do they work?
Justin Arzadon
6 minutes reading time
- Digital assets
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Bitcoin and the broader crypto market cooled off, hitting monthly lows one week after spot bitcoin ETFs were approved in the US. Bitcoin was trading at US$41,575, with Ethereum down 3.29% vs bitcoin’s 3.28% decrease. Bitcoin’s market capitalisation fell to US$815 billion, with the total crypto market cap down to US$1.64 trillion. Bitcoin’s market dominance is at 49.7%.
| Price | High | Low | Change from previous week | |
| BTC (in US$) | $41,575 | $43,439 | $40,360 | -3.28% |
| ETH (in US$) | $2,468 | $2,609 | $2,414 | -3.29% |
Source: CoinMarketCap. As at January 21, 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
First to $1 billion FUM
One week after the first spot bitcoin ETFs started trading in the US, the price of BTC is below $42K after trading close to $49K when the approval announcement was made. However, BTC is up over 54% since October and 83% over the last 12 months.
After years of regulatory pushback, 11 new spot bitcoin ETFs were approved. BlackRock’s ETF has been the most popular so far, being the first to reach $1 billion in assets under management. Fidelity had the next largest inflows as of 18 January with more than $600 million, according to CFRA data. Greyscale Bitcoin Trust saw net outflows, however Greyscale had converted its existing bitcoin close-ended fund into an ETF, and the Bitcoin Trust still has close to $24 billion in assets under management. The ten spot bitcoin ETFs now trading have seen trading volumes over $16.6 billion since their launch, according to FactSet and Dow Jones Market Data.1
“Bigger than any government”
Larry Fink, the CEO of BlackRock, the world’s largest asset manager and manager of the spot bitcoin ETF quickest to $1 billion, says he has become “a big believer”. Fink was initially a naysayer, but started to change his mind about two years ago.
In an interview with Fox Business, he said: “If you’re in a country where you’re fearful of your future, fearful of your government, or you’re frightened that your government is devaluing its currency by too much deficits, you could say this is a great potential long-term store of value. Like I said, it’s like digital gold.” He added: “It’s an international ledger that’s cross-border. It’s bigger than any government.”2
Coinbase benefits from bitcoin ETF approvals
Eight of the 11 approved spot bitcoin ETFs are using Coinbase (NASDAQ: COIN) as custodian. Coinbase is the largest crypto exchange in the US. Fees are earned from custodial fees and ancillary services. As these ETFs grow and create more shares, additional bitcoin will be bought through the platform. Further ETF approvals on other cryptocurrencies may also benefit Coinbase, assuming it is chosen as custodian for those ETFs.
Coinbase Global Inc. is currently held in Betashares Crypto Innovators ETF (ASX: CRYP) (as at 19 January).3
On-chain metrics
Bitcoin (BTC): Long Term Holder NUPL
This metric shows long term holder net unrealised profit and loss. LTH-NUPL is net unrealised profit/loss that takes into account only UTXOs (unspent transaction output) with a lifespan of at least 155 days, and serves as an indicator to assess the behaviour of long term investors.
According to data from Glassnode, Long Term Holder NUPL reached a high of 0.55 earlier in the week which was quite positive. This puts the average long-term investor at 55% unrealised profit.
Source: Glassnode. Past performance is not indicative of future performance.
This metric shows the total amount of circulating supply held by long term holders. Long-and short-term holder supply is defined with respect to the entity’s averaged purchasing date, with weights given by a logistic function centred at an age of 155 days and a transition width of 10 days.
According to data from Glassnode, Long-Term Holder Supply had come off very slightly, peaking at the end of November at 14,980,787 BTC down to 14,836,510 BTC as older coins were spent to take profits. It should be noted that LTH supply accounts for 76.3% of the circulating coin supply.
Source: Glassnode. Past performance is not indicative of future performance.
Altcoin news
Altcoins took a hit over the seven days to 21 January, however with spot bitcoin ETFs now launched, the altcoin most likely to benefit is arguably Ethereum (ETH). Applications for spot ETH ETFs have been submitted by BlackRock, Invesco, Ark and VanEck and others, with decisions for approval by the SEC beginning in May.
Other news that may influence the price of ETH is the next main net upgrade called Decun, set for the upcoming months. This upgrade is focused on scalability and could help reduce congestion and network fees, according to Coinbase.4
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.morningstar.com/news/marketwatch/20240120226/bitcoin-etfs-just-had-their-first-week-of-trading-heres-whos-winning-and-losing
2. https://news.bitcoin.com/blackrock-ceo-larry-fink-on-bitcoin-im-a-big-believer-its-bigger-than-any-government/
3. https://finance.yahoo.com/news/why-coinbase-coin-biggest-winner-213502290.html. No assurance is given that these companies will remain index constituents or will be profitable investments.
4. https://www.cnbc.com/2024/01/11/ether-price-spikes-on-hope-of-eth-etf-but-will-the-sec-approve-it.html
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.
