How much capital has entered the Bitcoin ETF after 40 days?

Original Title: "Grayscale Sells Off, BlackRock Feeds? How Much Capital Has Flowed into the Crypto Market After Bitcoin ETF Approval"

Original Author: Frank, PANews

On January 11, the U.S. Securities and Exchange Commission (SEC) finally approved the Bitcoin ETF applications, with 11 Bitcoin ETFs listed. The entire crypto circle welcomed a new surge with this news, as the Bitcoin price briefly dropped from $49,000 to $38,500, then gradually rebounded and successfully broke through the $53,000 mark. So, is the Bitcoin ETF really becoming the biggest bullish driver for this round of the crypto market bull run? PANews conducted a comprehensive review of the Bitcoin ETF dynamics during this phase. In the span of over 40 days, how much capital has the Bitcoin ETF brought into Bitcoin?

After ETF Approval, Net Increase of 110,000 Bitcoins, Total Holdings Reach $37.21 Billion

Since the ETF approval, as of February 25, 2024, the number of Bitcoins held by the 11 ETFs has increased from 619,491 to 732,549, with a total net increase of 113,058 Bitcoins. The total holdings of Bitcoin ETFs amount to 732,000 Bitcoins, with the managed capital scale rising from $28.59 billion to $37.21 billion, an increase of $8.6 billion in capital.

According to this data, the average purchase price during the initial phase of the Bitcoin ETF was approximately $46,163, and the current average holding price is $50,803.

Currently, the holdings of Bitcoin ETFs account for 3.73% of the total supply, a figure that exceeds the number of Bitcoins in 596,000 wallet addresses on Binance (according to coincarp data). The top 30 Bitcoin spot exchanges currently hold about 1.2 million Bitcoins (excluding the number held by ETFs). From the net increase of 110,000 Bitcoins, the direct new circulation demand brought to the crypto market by the ETF approval accounts for approximately 9.34%, which directly stimulated the Bitcoin price to rise above $53,000.

Grayscale Sells 175,000 Bitcoins, BlackRock Acquires 127,000

Although the overall holdings of Bitcoin ETFs have increased, in the days following the Bitcoin ETF approval on January 11, the Bitcoin price experienced a significant drop from $49,000 to $38,500. This sharp decline was mainly due to Grayscale's sell-off.

Since investors do not directly purchase Bitcoins when buying ETFs, ETF issuers need to purchase the corresponding Bitcoin spot through cryptocurrency exchanges like Coinbase to match market circulation based on secondary market order demand. Consequently, institutions like Grayscale, which previously had a discount on their Bitcoin GBTC, needed to sell corresponding Bitcoin shares to eliminate the discount after the ETF approval.

Before the SEC approved the Bitcoin ETF, Grayscale was the largest holder of Bitcoin, and due to the nature of GBTC as a non-redeemable trust fund, Grayscale's Bitcoin holdings had always remained unchanged. After the Bitcoin ETF approval, this status was broken. Since ETFs have redeemable attributes, Grayscale's Bitcoin holdings began to rapidly decrease from 617,000 to 445,000.

Several factors contributed to this: the most important reason is that Grayscale's management fee is six times higher than its competitors. Currently, the management fees of most ETFs range from 0.49% to 0.19%, while Grayscale's management fee remains at 1.5%, about six times that of other competitors. For large institutional clients investing in ETFs, Grayscale's management fee is clearly not competitive. On the other hand, Ark, which was among the top ten holders of GBTC, has established its own ETF (ARKB) and will also transfer funds to its own ETF pool. Additionally, the lack of arbitrage space due to GBTC no longer having a discount has led many GBTC holders to shift their positions.

In contrast, BlackRock's IBIT has increased its holdings from 228 Bitcoins on January 10 to 126,900 Bitcoins now. BlackRock is the largest asset management company in the world, managing approximately $8.9 trillion globally. In terms of client resources and brand effect, it is one of the most competitive among various ETF products. Currently, the Bitcoin ETF holdings managed by BlackRock and Fidelity Investments have surpassed MicroStrategy's 190,000 Bitcoins. Another ETF issuer, Fidelity, has also increased its Bitcoin holdings to 91,600, with these two institutions nearly absorbing all the Bitcoins sold off by Grayscale. Therefore, from this perspective, the increase in Bitcoin ETF holdings has not yet shown significant effects but is in a phase of competition among various issuers.

Coinbase Custodies 637,000 Bitcoins, 2024 Custody Fees May Exceed $30 Million

After the ETF approval, various ETF fund companies seem to have become the most sought-after enterprises in the market. In fact, with this policy implementation, Coinbase is likely to benefit the most, as it has the opportunity to regain its position as the leader in cryptocurrency exchanges in 2024.

Among all the issued ETFs, except for Fidelity, which self-custodies 91,000 Bitcoins, almost all other ETFs have chosen Coinbase as the custodian for their Bitcoin holdings. Coinbase currently custodies 637,000 Bitcoins for ETF issuers, accounting for 86.9% of all ETF holdings, surpassing Binance's 590,000 holdings.

According to Coinbase's reported revenue for the fourth quarter of 2023, it was $953.79 million, exceeding the market's expected $822.36 million. Its financial report indicated that Coinbase's customer asset custody revenue for 2023 was $20 million. Based on the industry's low fee rate of 0.1%, the current custody funds of $32.4 billion for Bitcoin ETFs will bring Coinbase $32.49 million in revenue in 2024, which will increase as the ETF scale grows.

Apart from Grayscale, BlackRock and Fidelity Investments are currently the most significant pillars among ETF issuers. BlackRock currently has 427 ETF products, with the total assets under management (AUM) of the IBIT product at $6.5 billion, ranking 82nd among BlackRock's ETF products. As the market matures, IBIT's ranking is expected to continue to rise. Another asset management giant, Fidelity Investments, follows closely with approximately $4.65 billion. Currently, the total assets under management of Grayscale, BlackRock, and Fidelity Investments account for 90.6% of the ETFs.

Based on the fee standards of these three companies, maintaining the current share, Grayscale's management fee revenue is approximately $340 million (fee rate 1.5%), BlackRock's about $16 million (fee rate 0.25%), and Fidelity Investments about $11 million (fee rate 0.25%). Of course, if Grayscale continues to maintain its current management fee level, it may soon lose its current Bitcoin holding scale.

Currently, the market expects that Ethereum ETFs will also be approved in 2024, with BlackRock being one of the main drivers. As more and more crypto assets enter mainstream finance, this market will become more mature and full of possibilities.