- Bitcoin ETFs are showing significant growth, which could positively affect the Bitcoin price.
- BlackRock’s IBIT fund leads in capital inflows among Bitcoin ETFs.
The rapid adoption of Bitcoin ETFs by investment advisors has not only set new benchmarks in the history of exchange-traded funds but has also shaped a crucial shift in the cryptocurrency market. Let’s explore this phenomenon and its implications on the market.
The Rise of Bitcoin ETFs: A New Era for Cryptocurrency Investments
Despite some analysts, like Jim Bianco, labeling these purchases by advisors as “minimal,” a closer examination of the data reveals a noteworthy trend. Matt Hougan, director at Bitwise, points out that the BlackRock Bitcoin ETF (IBIT) alone has attracted net inflows of $1.45 billion from investment advisors.
While this may seem small compared to the total $46 billion that has flowed into Bitcoin ETFs, it positions IBIT as the second fastest-growing ETF launched in 2024. Among over 300 ETF launches this year, only the KLMT ETF, focusing on ESG (Environmental, Social, and Governance), surpasses IBIT in managed assets. However, KLMT was propelled by a single $2 billion investment and shows low market activity, with an average of only 250 shares traded daily and no significant adoption by investment advisors.
Hougan states,
“The truth is that investment advisors are adopting Bitcoin ETFs faster than any other ETF in history.”
What is happening is that their historical inflows are being overshadowed by even more historic purchases by other investors.
The Positive Implications of ETFs for Bitcoin
The accelerated growth of spot Bitcoin ETFs is likely to have significant long-term effects on Bitcoin’s price. Since these funds are directly backed by the digital currency, the companies managing them are obligated to purchase Bitcoin to support investor assets. This massive acquisition of BTC tends to reduce the supply available on exchanges, which, according to the simple law of supply and demand, drives the price up.
A clear example of this phenomenon can be seen in commodity ETFs like gold. When the first ETFs backed by physical gold were launched, management companies had to buy large amounts of the metal to fund their funds, leading to strong upward pressure on the price. The same principle applies to spot Bitcoin ETFs, where the acquisition of BTC by funds like those of BlackRock, Bitwise, and others manages a significant portion of the total circulating Bitcoin supply.
Unlike traditional commodities, the supply of Bitcoin is capped at 21 million units, which further amplifies the impact of institutional demand on the price. As more investment advisors and other institutional players adopt these ETFs, the growing demand for Bitcoin could decrease the asset’s availability on the market and steadily increase its value. This solidifies Bitcoin as a long-term strategic asset class since its supply cannot be adjusted to meet increased demand.