Glassnode Why are ETF net inflows increasing while Bitcoin prices remain stagnant

ETF
Cash and carry arbitrage behavior between ETF and short selling through futures on CME effectively offset the inflow of ETF funds.
Written by: CryptoVizArt, UkuriaOC, Glassnode
Translation by: Ladyfinger, BlockBeats
Editor’s note: In this in-depth analysis, we focus on several key dynamics in the Bitcoin market, from the evolution of technical protocols to macro changes in market structure. It is noteworthy that while the inflow of funds from the U.S. spot ETF has brought vitality to the market, market-neutral cash and carry trading strategies are balancing the buying pressure, leading to a neutral price impact. In addition, the sharp contrast between the decrease in the number of active addresses on the Bitcoin network and the surge in trading volume raises intriguing questions. By analyzing the impact of emerging technologies such as the Runes protocol, we reveal its direct role in the decrease in active addresses. At the same time, we also observe the amount of Bitcoin held by major entities and the important role of Coinbase in the market, shaping the current market landscape.
Despite the impressive inflow of funds from the U.S. ETF, market-neutral cash and carry trades seem to be reducing buying pressure, and the market needs non-arbitrage demand to further drive price increases. At the same time, we are also analyzing the significant differences between the decrease in the number of active addresses and the surge in trading volume.
BlockBeats note: Cash and carry trade refers to buying (selling) physical bonds and selling (buying) bond futures at the same time. The cash-and-carry trading strategy is based on the price difference of an asset in two different markets (such as the price difference between the spot market and the futures market), and if executed properly, it can yield returns. Generally, traders need to manage two different contracts simultaneously when executing the cash and carry trade strategy, making the process complex and lengthy.
Summary
With the emergence of the Runes protocol, there is an unexpected divergence between the decrease in active addresses and the increase in trading volume.
Currently, major tagged entities hold an astonishing 4.23 million BTC, accounting for over 27% of the adjusted supply, while the U.S. spot ETF currently holds a balance of 862,000 BTC.
The structure of cash and carry trades seems to be an important source of ETF inflow demand, as ETFs are used as a tool to obtain long positions in physical spot markets, while net short positions in Bitcoin are accumulating on the CME futures market.
Activity Differences
On-chain activity indicators, including active addresses, trading volume, and transaction amounts, are key tools for evaluating the development and efficiency of blockchain networks. In mid-2021, China imposed restrictions on Bitcoin mining, leading to a sharp decrease in the number of active addresses on the Bitcoin network, with daily active addresses dropping from over 1.1 million to just 800,000.
The Bitcoin network is currently experiencing activity contraction, with underlying reasons different from before. In the following sections, we will delve into emerging concepts such as inscriptions, ordinals, BRC-20 tokens, and runes, and how they fundamentally change analysts’ understanding and predictions of future trends in activity indicators.
Real-time Data
Although historically, a strong market trend is usually accompanied by an increase in active addresses and daily trading volume, the current trend deviates from this.
While the number of active addresses appears to be decreasing, Bitcoin network transaction processing volume is approaching historical highs. The average monthly transaction volume currently stands at 617,000 transactions per day, 31% higher than the annual average level, indicating a relatively high demand for Bitcoin block space.
Real-time Data
By comparing the recent decline in the number of active addresses with the trading share of inscriptions and BRC-20 tokens, we can observe a strong correlation. Notably, since mid-April, the number of inscriptions has also shown a sharp downward trend.
This indicates that the decrease in the number of active addresses is mainly due to the reduced use of inscriptions and ordinals. It should be noted that in this area, many wallets and protocols reuse the same address, and if an address has multiple activities within a day, it will not be counted multiple times. Therefore, even if an address generates ten transactions in a day, it will still only be counted as one active address in statistics.
Real-time Data
To explain the decrease in inscription activity, we can focus on the emergence of the Runes protocol, which claims to introduce a more efficient way of introducing fungible tokens on Bitcoin. The Runes protocol was launched at the block halving, explaining the decline in the number of inscriptions in mid-April.
Runes employs a different technical mechanism from inscriptions and BRC-20 tokens, using the OP_RETURN field (80 bytes) to encode arbitrary data on the blockchain, significantly reducing the demand for block space while maintaining data integrity.
Since its launch on April 20, 2024, the Runes protocol has quickly gained market traction, with daily trading demand increasing to 600,000 to 800,000 transactions, maintaining this high level of trading volume thereafter.
Image Indicators
Currently, transactions related to Runes account for a high proportion of daily trading volume, reaching 57.2%, significantly surpassing BRC-20 tokens, ordinals, and inscriptions. This phenomenon suggests that speculative interest from users may have shifted from inscriptions to the emerging Runes market.
Image Indicators
Differences in ETF Demand
A recent issue of particular market interest is that despite the large inflow of funds into the U.S. spot ETF, prices have stagnated. To further analyze and evaluate the demand side of ETFs, we can compare the current holdings of the ETF (862,000 BTC) with the holdings of other major tagged entities in the market.
The U.S. spot ETF holds 862,000 BTC, Mt. Gox creditors hold 141,000 BTC, the U.S. government holds 207,000 BTC, all exchanges combined hold 2.3 million BTC, and miners (excluding Patoshi) hold 706,000 BTC. The total holdings of these major entities amount to approximately 4.23 million BTC, accounting for 27% of the adjusted circulating supply of Bitcoin, where adjusted supply refers to Bitcoin that has not been moved for over seven years being deducted from the total supply.
Real-time Data
As a leading cryptocurrency platform, Coinbase controls a vast amount of exchange assets, and its custodial services also manage the Bitcoin holdings of the U.S. spot ETF. It is estimated that Coinbase Exchange and Coinbase Custody currently hold about 270,000 BTC and 5.69 million BTC, respectively.
Image Indicators
Coinbase’s influence on the market price mechanism is increasing due to its service to ETF clients and traditional on-chain asset holders. Observing the dynamics of large deposits into Coinbase Exchange wallets, there has been a noticeable increase in deposit volume after the ETF launch.
Most of the deposited Bitcoin is closely related to the continuous outflow of the GBTC address group, which has become a key reason for the oversupply of Bitcoin throughout the year.
Real-time Data
In addition to the selling pressure brought by GBTC in the Bitcoin market when reaching historic highs, another factor has recently acted as a restraint on the demand for the U.S. spot ETF.
Looking at the CME Group futures market, open interest reached a record high of $11.5 billion in March 2024 and has since remained above $8 billion. This trend may reflect an increasing number of traditional market participants using cash and carry arbitrage strategies.
This arbitrage strategy takes a market-neutral position, involving the simultaneous purchase of long-term physical positions and the sale (shorting) of futures contracts for the same asset, which become trading objects due to the premium.
Real-time Data
Observations show that investors classified as hedge funds are building increasingly large net short positions in Bitcoin.
This suggests that the cash and carry trade structure may be a key driver of ETF fund inflows, using ETFs as a means to acquire long-term Bitcoin spot positions. Since 2023, the CME Group exchange has seen significant growth in open interest and market leadership positions, revealing itself as the preferred platform for hedge funds to short Bitcoin futures.
Currently, hedge funds hold $6.33 billion in net short positions in Bitcoin futures on the CME market, with a net short position of $97 million on the Micro CME Bitcoin futures market.
CME COTs – THE BLOCK
Conclusion
The popularity of the Runes protocol significantly exacerbates the differences between activity indicators, as the protocol allows for multiple transactions from a single address through address reuse. Additionally, the cash and carry arbitrage behavior between the U.S. spot ETF product and short selling through the CME Group exchange effectively offsets the inflow of ETF funds. This market phenomenon leads to a neutral impact on prices, implying that the market needs non-arbitrage natural buying pressure (i.e., real buyers) to drive price increases.
Tags
CME
ETF
glassnode
Hedge funds
Bitcoin
United States
Source link:
https://www.theblockbeats.info/news/53837
Note: The views expressed in all articles on BitPush are those of the authors and do not constitute investment advice.
Original link: https://www.bitpush.news/articles/6869992
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