Introduction
The past decade has seen significant growth and innovation in the world of Bitcoin exchange-traded funds (ETFs). With a total net inflow of $18.9 billion, these innovative financial instruments have captured the attention of investors worldwide. In this article, we will delve into the history of Bitcoin ETFs, their current market performance, and what the future holds for these groundbreaking investments.
A Record-Breaking Launch
Bitcoin ETFs have made a remarkable impact since their launch on January 11th, 2024. With nine newborn ETFs excluding Grayscale Bitcoin Trust (GBTC), they have attracted a total net inflow of $18.9 billion, according to Farside data. GBTC itself holds an additional 223k BTC, bringing the total to 869k BTC, which represents approximately 4% of the circulating bitcoin supply.
ETF Market Performance
Bitcoin ETFs have achieved several significant milestones this year. As reported by Eric Balchunas, Senior Bloomberg Analyst, the decade has seen a record-breaking 2,000 ETF launches. Among the top 10 largest assets are iShares Bitcoin Trust (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC). These impressive figures demonstrate the growing interest in bitcoin-based investments.
ETF Trading Volume: A Small but Growing Fraction
While the ETF market has grown significantly, it still remains a small fraction of the overall bitcoin trading volume. According to checkonchain data, on October 11th, the last full trading day, the bitcoin futures market traded $53.4 billion, the spot market traded $4.5 billion, and the ETFs traded $2 billion. This means that ETF trading volume accounted for roughly just 3% of the total bitcoin market volume that day.
The Basis Trade: A Market-Neutral Strategy
A portion of the inflows into bitcoin ETFs can be attributed to the ‘basis trade’, also known as the cash and carry trade. This strategy involves investors going long the underlying asset while simultaneously shorting the futures contract, which typically trades at a premium. The goal is to capture the premium between the spot and futures price.
How the Basis Trade Works
The basis trade is a market-neutral strategy, meaning that the investor is both long and short the same asset. The futures position offsets any movement in the underlying ETF’s spot price, allowing the investor to lock in the arbitrage premium without being exposed to directional market risk.
IBIT’s Biggest Holders: A Closer Look
Using Fintel data, we can review IBIT’s largest holders, which have been disclosed in the 13-F filings. These filings require institutions with over $100 million in assets under management (AUM) to report ETF purchases. The top holdings show that major holders such as Goldman Sachs and Jane Street Capital are authorized participants (APs) involved in the creation and redemption of the ETF shares.
Largest Holders of IBIT (Fintel)
| Rank | Name | Shares Held |
| — | — | — |
| 1 | State of Wisconsin Investment Board | 2,143,191 |
| 2 | Goldman Sachs | 1,514,190 |
| 3 | Jane Street Capital | 1,344,191 |
Moving Forward: Expectations and Catalysts
Private wealth management firm Bernstein previously referred to the institutional basis trade as a ‘Trojan horse for adoption’. Bernstein suggested that as liquidity in the ETF market grows, these trades could lead to net long positions. As ETFs become a larger part of the overall market, liquidity and investor participation will be further enhanced.
Approval of Physically Settled Options: A Catalyst for Growth
Another potential catalyst for the ETFs is the approval of physically settled options tied to IBIT. These options provide opportunities to earn passive yield through strategies such as covered calls or allow miners to hedge their position. As ETF adoption increases, these factors are expected to play a larger role in the market.
Conclusion
In conclusion, Bitcoin ETFs have made a significant impact on the financial markets since their launch. With a total net inflow of $18.9 billion and holding approximately 869k BTC, they represent a small but growing fraction of the overall bitcoin trading volume. The basis trade, a market-neutral strategy, has contributed to the growth of these investments. As the ETF market continues to evolve, we can expect increased liquidity, investor participation, and innovative investment strategies.
References
- Farside data
- checkonchain data
- Eric Balchunas, Senior Bloomberg Analyst
- Fintel data
