Analysis of Bitcoin ETFs October 2024: Strong return of cash flow?

Introduce

Throughout September, ETFs continuously sold off Bitcoin, despite experiencing losses ranging from 2.3% to 4.5% and facing consistent outflows over the month. However, following a significant capital withdrawal period, this week has seen a marked recovery. Notably, the third week of October witnessed an immense influx of capital from the IBIT and FBTC funds.

In the third week of October, inflows into US Bitcoin ETFs reached over $2 billion, the largest amount since Bitcoin previously hit $73,000.

US Bitcoin ETFs have also reached an important milestone in net inflows. As of October 17, total net inflows into these ETFs exceeded $20 billion since the beginning of the year, achieved within just 10 months since the launch of Bitcoin ETFs. This reflects strong interest and participation from institutional investors, especially compared to gold ETFs, which took five years to achieve a similar figure.

Despite positive days, the Bitcoin ETF market has not been without challenges. At the beginning of October, these funds experienced a significant outflow of $388 million in just three days due to geopolitical tensions in the Middle East.

However, following this decline, the funds quickly rebounded, with net inflows returning on October 4, indicating a volatile week but still maintaining high interest from investors.

These developments reflect the high volatility of the Bitcoin ETF market, significantly influenced by both internal and external factors, while also showcasing the growing potential and interest from institutional investors.

Bitcoin ETF Inflows

In the past 20 days of October, the US Bitcoin ETF market has seen over $3 billion flow into this sector, raising the total inflows to over $20 billion since inception. The statistics for the last 20 days in October are as follows:

• IBIT: $1.4 billion

• FBTC: $1.3 billion

• BITB: $171 million

• ARKB: $134 million

• BTCO: $40.2 million

• EZBC: $21.4 million

• BRRR: $4.7 million

• HODL: $57.1 million

• BTCW: $2.8 million

• GBTC: $40.2 million

• BTC: $18.1 million

These figures indicate a strong resurgence of interest and confidence in Bitcoin ETFs among investors.

The inflows and outflows of US Bitcoin ETFs in October 2024 have experienced significant fluctuations. At the beginning of the month, these Bitcoin ETFs saw a sharp decline, with total outflows reaching $388 million within the first three days, primarily due to falling Bitcoin prices influenced by geopolitical tensions in the Middle East.

Despite this, the market rebounded on October 4, with these funds receiving $25.59 million; however, this amount was insufficient to offset the initial losses.

Notably, October 14 marked the largest inflow since June, with a total of $555 million flowing into Bitcoin ETFs. This milestone pushed total inflows into Bitcoin ETFs to surpass $20 billion by mid-month.

Prominent funds in this growth include the Fidelity Wise Bitcoin Origin Fund with $1.3 billion, Bitwise with over $100 million, and BlackRock’s iShares Bitcoin Trust with nearly $1.4 billion.

However, not all ETFs performed well. For instance, the Grayscale Bitcoin Trust continued to struggle, experiencing outflows of more than $22 million on October 11.

In October, total inflows into Bitcoin ETFs exceeded $3 billion, with IBIT and FBTC accounting for over 80% of the net positive flows in recent days. This underscores the significant momentum of these two investment funds and their continuous inflow into Bitcoin, showing no signs of slowing down.

Additionally, changes in monetary policy from the Federal Reserve (Fed) have had a significant impact. The Fed maintains high interest rates to control inflation, putting pressure on risk assets like Bitcoin, which in turn affects the inflows into ETF funds. The Fed's decision to cut interest rates has provided a catalyst for increased investment into Bitcoin funds, with total inflows reaching a record high of over $20 billion this month.

In conclusion, the inflows and outflows from Bitcoin ETFs in October 2024 are heavily influenced by macroeconomic factors, including geopolitical issues, Fed monetary policy, and expectations for a new bull cycle in Bitcoin.

Personal Assessment

While recent inflows are a positive sign for Bitcoin ETFs, the mixed performance among major funds indicates the market is undergoing shifts ahead of the U.S. presidential election. Some funds, such as Fidelity and BlackRock, are experiencing renewed investor interest, while others, like Grayscale's GBTC, continue to struggle with outflows.

As Bitcoin stabilizes and trading volume increases, the upcoming weeks will be crucial in determining whether the influx of capital represents a sustainable recovery or merely a temporary reaction to recent price fluctuations. Institutional interest, particularly from investment advisors, could play a significant role in shaping the future of Bitcoin ETFs.

Bitcoin Holdings in ETFs

As of October 2024, U.S. Bitcoin ETFs are holding a substantial amount of Bitcoin, reflecting the strong growth of institutional investment in digital assets. In total, U.S. Bitcoin ETFs are currently managing over 951,000 Bitcoin, with BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC) representing a significant portion.

This volume is approaching the estimated amount of Bitcoin held by Satoshi Nakamoto, the founder of Bitcoin, which is around 1.1 million BTC.

Top Bitcoin ETFs in the U.S.

1. iShares Bitcoin Trust by BlackRock: This is the largest fund, holding over 385,590 Bitcoin, equivalent to approximately $26.6 billion (based on a current Bitcoin price of $69,000).

2. Fidelity Wise Origin Bitcoin Fund: This fund manages about 178,330 Bitcoin, totaling around $12.3 billion.

3. Grayscale Bitcoin Trust: As a pioneer in the Bitcoin ETF space, it still holds a significant amount of Bitcoin but has experienced some recent outflows.

4. ARK 21Shares Bitcoin ETF: Although one of the newer funds, it is growing rapidly, with assets under management (AUM) of $3.4 billion.

The iShares Bitcoin Trust by BlackRock currently holds approximately 385,590 BTC, capturing nearly 50% of the market share. This impressive figure positions BlackRock as one of the largest financial institutions holding Bitcoin. The fund has attracted substantial inflows from institutional investors, particularly due to BlackRock's global prestige and scale. The increase in Bitcoin holdings reflects growing confidence in Bitcoin as a safe-haven asset, especially in the face of economic and political volatility.

Additionally, other funds like the Fidelity Wise Origin Bitcoin Fund are also garnering significant interest from investors, contributing to the overall growth of the Bitcoin ETF market. With predictions that Bitcoin could rise to $100,000 in 2024, this asset volume may continue to increase as capital flows into the market persist.

The development of Bitcoin ETFs has also transformed the manner in which institutional investors engage with the cryptocurrency market, shifting from direct ownership to investing through more managed and transparent financial vehicles.

Price Volatility of Stocks and Holding Profitability of Bitcoin

In October 2024, the stock prices of Bitcoin ETFs in the U.S. experienced significant volatility, particularly as Bitcoin reached record levels. For instance, the iShares Bitcoin Trust (IBIT) recorded a notable price increase, with a return of 15.37% within a month.

However, IBIT is also one of the funds with very high volatility, registering a 5-day volatility of 121.35% and a 20-day volatility of 38.66%. Metrics such as IBIT's beta reached 2.51, indicating a strong sensitivity of this fund to market movements.

Similarly, the Bitwise Bitcoin ETF Trust (BITB) also saw a profit increase in October, achieving a 15.27% rise over the month. The fund's 20-day volatility was 38.53%, quite comparable to IBIT. These fluctuations were largely driven by the sudden price surge of Bitcoin surpassing $65,000 during the month, leading to substantial interest from investors.

On the other hand, Bitcoin ETFs like the ProShares Bitcoin Strategy ETF (BITO) exhibited even higher volatility, with a 5-day volatility of 318.64%, reflecting the fund's sharp sensitivity to Bitcoin price swings.

These dynamics showcase the increased risk and return potential associated with Bitcoin ETFs, particularly in a market characterized by rapid price movements. As investor interest grows, understanding the volatility profiles of these funds becomes essential for assessing potential investment strategies in the evolving cryptocurrency landscape.

Overview of the Two Largest US Bitcoin ETFs

iShares Bitcoin Trust (IBIT):

• Assets Under Management (AUM): As of mid-October 2024, IBIT has surpassed $26.5 billion in assets under management, reflecting strong investor interest in this Bitcoin ETF. Managed by BlackRock, it leverages the risk management capabilities and investment tools from one of the world’s leading financial institutions.

• Trading Volume: Over the past 30 days, IBIT has recorded an average trading volume of approximately 27.6 million shares, indicating vibrant market activity.

Fidelity Bitcoin ETF (FBTC):

• Assets Under Management (AUM): Although trailing behind IBIT, FBTC has rapidly grown to exceed $5 billion in assets under management. Its popularity is attributed to its efficient structure and low costs.

The growth of these funds has been driven by substantial capital inflows, particularly after Bitcoin reached a new high of $73,000 in 2024. The significant increase in trading for these ETFs primarily comes from institutional investors and the rising expectations for Bitcoin as a strategic investment asset.

Market Dynamics

Despite the strong recovery, Bitcoin ETFs still face high volatility due to macroeconomic factors such as the monetary policy of the Federal Reserve (Fed) and geopolitical events. This can lead to price adjustments in the short term, although long-term demand from institutional investors for Bitcoin continues to rise.

Profitability Analysis

An analysis of the profitability associated with holding Bitcoin through these US ETFs reveals a notable level of efficiency but also highlights the risks associated with Bitcoin's price volatility. Investors should remain aware of these dynamics as they navigate the opportunities and challenges presented by the evolving cryptocurrency landscape. The performance of these ETFs will serve as an important indicator of broader market sentiment and the adoption of Bitcoin among institutional investors.

Performance of Bitcoin ETFs

1. Long-Term Profitability: The Bitcoin ETFs have delivered substantial returns for investors since the beginning of 2024, particularly as the price of Bitcoin surged. With the price rising from approximately $30,000 at the start of 2024 to $63,000 in September, these funds have achieved returns of double or more in some cases. BlackRock iShares Bitcoin Trust and Fidelity Wise Origin Bitcoin Fund are two leading funds with impressive asset growth, buoyed by large inflows from institutional investors.

2. Growth Driven by New Capital Flows: These ETFs have attracted significant capital this year, with Grayscale Bitcoin Trust and VanEck Bitcoin Strategy ETF also recording strong growth in the volume of Bitcoin held, further enhancing their net asset value (NAV).

Profit Calculation

Assuming the price of Bitcoin fluctuates from $30,000 to $63,000 within the year, the returns from holding Bitcoin in these funds could exceed 110%, depending on the timing of investments and capital management of each fund.

• For example, if a fund holds $100 million in Bitcoin when the price is $30,000, the fund’s assets would increase to approximately $210 million when the price reaches $63,000.

Risks and Volatility

While the profits from holding Bitcoin can be substantial, Bitcoin’s price volatility remains a key risk factor. In the short term, the price of Bitcoin may experience significant fluctuations due to macroeconomic events, Fed monetary policy, and geopolitical factors. This requires investors to have a long-term perspective and a high risk tolerance when investing in Bitcoin ETFs.

Commentary from HCCVenture

In the past month, US Bitcoin ETFs have begun showing signs of returning to the market, with consecutive positive inflows throughout the week. This reflects that these ETFs have detected signals of Bitcoin's impending recovery.

Bitcoin ETFs have surpassed the $20 billion mark in total inflows, marking a significant milestone for this market. This occurs even as Bitcoin prices have yet to recover above $68,300, indicating that investors have a strong belief in ETFs as a safer and more effective investment vehicle compared to holding Bitcoin directly.

The increase in capital flows to funds like iShares Bitcoin Trust (IBIT) and Fidelity Bitcoin ETF (FBTC) indicates a shift in market sentiment, with institutional investors flocking to Bitcoin as prices stabilize. In the first 20 days of October alone, total inflows into these ETFs reached $3 billion.

However, analysts still caution that this growth may not be sustainable, particularly as Bitcoin prices continue to face pressure from macroeconomic factors such as interest rate adjustments and political uncertainties. The development of Bitcoin ETFs not only reflects investors' confidence in the cryptocurrency market but also opens up opportunities for new forms of investment, while minimizing risks associated with direct cryptocurrency holdings.

Overall, October 2024 has shown positive signals for the Bitcoin ETF market in the U.S., with a strong likelihood of continued attracting capital in the near future. If Bitcoin can surpass the $68,300 threshold and establish a sustainable upward trend, this could create new opportunities for investors and the financial market as a whole.

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Data from: HCCVenture

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