Record Digital Asset Inflows of $2.45B Propel Industry Assets to December 2021 Levels
Summary:
The digital asset industry saw a record $2.45 billion inflow in the week ending Feb. 17, pushing assets under management back to Dec. 2021 levels at $67.1 billion, largely due to Bitcoin investments in the US. However, the Bitcoin price appreciation and inflow to Bitcoin's spot exchange-traded funds (ETFs) may not have been propelled by new investors. The reasons behind Bitcoin's limited performance post the spot ETF launch remain ambiguous, but it is certain that the almost $5 billion net inflow was matched by sales from previous holders. Despite the limited performance, the benefits of moving to a spot ETF could drive further investments in the future.
The week ending Feb. 17 saw an unprecedented inflow of $2.45 billion into digital asset products, with the value appreciation of Bitcoin (BTC) pushing the value of industry assets under management back to $67.1 billion, equivalent to Dec. 2021 levels. The majority of these investments took place in the United States via Bitcoin’s spot exchange-traded funds (ETFs), as indicated in a Feb. 19 CoinShares blog post. Contrarily, data suggests the inflow into Bitcoin ETFs wasn't as a result of new investors, suggesting a less bullish perspective than was initially believed.
In spite of this, it is essential to evaluate if the 21.8% price gains recorded by Feb. 19 satisfied investors, considering the success of the ETF launch. Bitcoin's price, while impressive, is still around 25% less than the $69,000 all-time high, and prior billion-dollar acquisitions of Bitcoin by entities produced larger price reactions. Therefore, there was an expectation for a higher impact from the $4.93 billion net inflow to ETFs since their launch on Jan. 11, according to BitMEX Research data.
There are several potential reasons for Bitcoin’s mediocre performance, and it is impossible to ascertain how each market participant valued their position or the reasoning behind the selling pressure. Yet, what remains consistent is that if nearly $5 billion of net inflows entered the spot Bitcoin ETFs, they were certainly sold by previous holders. The confusion often arises between daily issuance and available supply for trade; often, the two are not aligned.
The Bitcoin network currently issues 900 BTC per day as incentives to miners, equivalent to roughly $328 million per week. However, Bitcoin’s daily adjusted volume is above $10 billion, rendering the coins produced for subsidies a non-essential element in price determination, considering over 93% of the total 21 million supplies are already circulating. Therefore, the miner’s inflow cannot be solely pinpointed as the cause of Bitcoin’s limited upward momentum following the spot ETF launch.
Bitcoin displayed a 48% increase over 14 days following Tesla's reported $1.5 billion investment on Feb. 8, 2021. The initial amount, $38,870, was only 7.5% below the preceding all-time high just a month prior, meaning even if the market somewhat predicted the move, the event itself skyrocketed Bitcoin’s price exponentially. It underlines the lack of impact created by the launch of the spot ETF in the U.S. in terms of price movements.
Bitcoin holders are provided with numerous benefits via a move to a spot ETF. Part of the inflow could be attributed to those investors who sold the equivalent position, benefits include simpler tax efficiency because gains/losses in the stock market can be compensated by the ETF instrument. Other benefits include easier monetary reporting and decreased custody risks. Some investors could prefer investing directly via their wallets, but for many, this isn’t the case.
Additionally, the growing CME Bitcoin futures open interest insinuates that the influx to the spot ETF might have been counterbalanced by equal short (selling) positions. The price difference between fixed-month contracts and regular spot prices, often called a premium or basis rate, is taken advantage of by arbitrage desks. The 'cash and carry' trade is built on purchasing a spot position and selling futures contracts at a premium.
Therefore, a share of the increase of 26,500 BTC open interest at CME by Feb. 19–over $1.3 billion at current rates–might have been connected to the spot ETF influx, albeit counterbalanced by short positions in futures. Still, there's no way to interpret the spot Bitcoin ETF data as bearish, and the longer the influx continues, the higher the chance of a supply shock pushing Bitcoin above the $60,000 mark.
This piece doesn't include investment advice or suggestions. Each investment and trading action includes a certain degree of risk, and readers should conduct independent research when making decisions.
Published At
2/20/2024 12:28:14 AM
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