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Analysis of Bitcoin ETF Demand
There has been a significant surge in demand for Bitcoin spot ETFs over the last few months, with experts predicting that this trend will persist for years to come. Matt Hougan, the CIO of Bitwise, has highlighted key insights he gathered from discussions with investors and capital allocators interested in investing in these ETFs.
Dispersion in Adoption of Bitcoin ETFs
Hougan noted that there is a massive dispersion in the pace of adoption of Bitcoin ETFs among financial advisors and national account platforms. While some are embracing these products early on, others are not considering them for their portfolios or are waiting until the following year to incorporate them.
Day 19 of 20 on the road. It has been an amazing trip.
A few additional takeaways to share:
1) ETF Flows Will Continue for Years: A good question to ask about the new bitcoin ETFs is whether the incredible inflows we’ve seen in the first two months represent a one-time surge…
— Matt Hougan (@Matt_Hougan) March 26, 2024
Hougan emphasized that despite the initial surge in inflows observed in the first two months since the launch of Bitcoin ETFs, most professional investors are still unable to invest in them. However, he believes that this situation will change over the next two years as a result of individual due diligence processes. Since their launch on January 11, Bitcoin ETFs have accumulated net inflows of $11.7 billion, even with outflows from the Grayscale Bitcoin Trust (GBTC) totaling over $14.3 billion. In a single day this week, the ETFs saw an additional $418 million in inflows, including $16.7 million for the Bitwise Bitcoin ETF.
Hashdex, a firm based in Brazil, announced the launch of its Bitcoin spot ETF today, adding to the growing interest in these products. The influx of funds into Bitcoin ETFs marks a significant advancement compared to previous years, with institutional Bitcoin funds seeing a substantial increase in investment.
Increased Demand and Portfolio Allocation
On-chain data suggests a rise in demand from accumulation addresses—Bitcoin addresses that solely buy and never sell. This heightened demand has led to a monthly increase in Bitcoin demand from 40K Bitcoin at the beginning of the year to 213K Bitcoin presently. While ETF buying has been a crucial driver of this demand growth, large investors have also contributed to the trend.
According to Matt Hougan, investors have shifted from a 1% Bitcoin portfolio share to 3% or higher, indicating a greater acceptance of Bitcoin as an investment. This change has been brought about by ETFs, which have helped to minimize the perceived risks associated with Bitcoin. James Butterfill, Coinshares’ Head of Research, notes that institutional investors are still significantly underinvested in Bitcoin, with it comprising only a 0.2% average share of their portfolios. He suggests that a 4% allocation to Bitcoin would represent minimal additional risk in a regularly rebalanced portfolio.
Overall, the increasing demand for Bitcoin ETFs reflects a growing confidence in Bitcoin as an asset class among investors, with ETFs playing a vital role in expanding the adoption of cryptocurrencies in traditional finance.
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