The week ending February 17 saw a record $2.45 billion influx into digital asset products, including Bitcoin's price appreciation.
(Photo : by Justin Sullivan/Getty Images)The week ending February 17 saw a record $2.45 billion influx into digital asset products, including Bitcoin's price appreciation.
The industry's assets under management recovered to December 2021 levels at $67.1 billion due to the increase of the price of bitcoin.
As per a CoinShares blog post on February 19, the majority of the investment was made in the United States via Bitcoin's spot exchange-traded funds (ETFs). Nevertheless, some data suggests that the inflow into the Bitcoin ETF is not being driven by new investors, which is far less optimistic than previously believed.
Considering the success of the ETF debut, it is important to ask if investors were satisfied with the 21.8% price increases by February 19. Even with this success, the price of Bitcoin is still about 25% below its all-time high of $69,000, and in the past, when large-scale buys of Bitcoin were announced, the market responded considerably more strongly. Therefore, based on BitMEX Research statistics, one would have anticipated a substantially greater impact from the ETFs' $4.93 billion net inflow since their inception on January 11.
While it is hard to ascertain how each market player values their position or the reason behind the sell pressure, there are a few plausible causes for Bitcoin's restricted performance. However, one thing is certain: prior investors sold an equivalent amount of Bitcoin ETFs if almost $5 billion in net inflows into the market.
Daily issuance and supply available for trading are sometimes confused by analysts and investors, but they are not always the same.
As a daily incentive for miners, the Bitcoin network now issues 900 BTC, or about $328 million, per week. Ultimately, the coins manufactured for subsidies are not reflective of the price given that over 93% of the maximum 21 million supply are already in circulation; by contrast, Bitcoin's daily adjusted volume exceeds $10 billion.
The minimal rise of Bitcoin following the debut of the spot ETF is not likely due to the miners' flow.
On February 8, 2021, Tesla revealed a $1.5 billion stake in Bitcoin; this announcement sparked a 48% increase in just 14 days. Strangely, only 30 days before to the commencement, at $38,870, the price was only 7.5% below the previous all-time high.
This suggests that, even if the market had somehow predicted the move, the event itself propelled Bitcoin's price to a far greater level. This further demonstrates the minimal influence on price movement of the spot ETF debut in the United States.
Spot ETFs Bring Multiple Benefits for Bitcoin Holders
For Bitcoin holders, moving their investment to a spot ETF has several benefits. It is plausible that investors who sold the equivalent stake somewhat countered some of the inflow. The ETF instrument can balance stock market profits or losses, making tax efficiency possible.
Other benefits include simpler tax reporting, easier estate planning, lower custody risks, and simpler financial reporting. Although it's true that some investors recognize the advantages of making direct investments with their own money, many do not.
Furthermore, the increasing open interest in CME Bitcoin futures suggests that some of the inflow into the spot ETF may have been offset by similar short (sell) holdings. The price differential, sometimes referred to as a premium or basis rate, between ordinary spot prices and fixed-month contracts is what arbitrage desks make money from.
Purchasing a spot position and selling the futures contracts at a premium is known as the "cash and carry" trade.
Consequently, a portion of the 26,500 BTC rise in open interest at CME over the 14 days leading up to February 19-roughly $1.3 billion at current prices-may have been attributed to the influx of spot ETFs, even as short positions in futures offset the effect.
Still, the spot Bitcoin ETF data does not allow for a gloomy interpretation, and the longer the inflow lasts, the greater the likelihood that a supply shock would drive Bitcoin beyond $60,000.
