Bitcoin Soars 67% in Q1, Reaching Historic High, Driven by Spot ETF Demand. Investors are looking for the next catalyst, possibly through other channels to access ETFs. The upcoming halving will also have a significant impact on prices. Despite a slow start, ETFs have ultimately been hugely successful this quarter. Canadian spot ETF outflows of $420 million may flow back into US ETFs. Bitcoin reaches all-time high, hash rate and transaction fees are also increasing. The halving event on April 20 will reduce the daily supply by half, which will have a significant impact on miners but limited impact on traders and investors. Demand is increasingly important in shaping the value of Bitcoin, and historical data shows that halving events play a crucial role in shaping Bitcoin price cycles. Join our webinar to delve into these events and gain expert insights.
Title: Research Weekly – 1Q24 Review and Look Ahead
Author: Greg Cipolaro
Source: NYDIG
In today’s issue:
Bitcoin surged 67.0% in the first quarter, driven by unprecedented demand for spot ETFs.
With explosive growth in ETF demand, Bitcoin reached a historic high, recovering faster from the November 2021 decline than previous cycles.
Although these ETFs had a bumpy road, their total fund flows have accumulated to $12.1 billion, making it the best-performing ETF launch in history.
The assets under management (AUM) of US spot Bitcoin ETFs reached $59.1 billion by the end of this quarter. In comparison, the AUM of US spot gold ETFs was $98.2 billion.
The US spot Bitcoin ETFs triggered a chain reaction. Canadian spot Bitcoin ETFs lost $424 million in funds, while leveraged futures funds accumulated $1.0 billion during the price increase.
Surprisingly, the US Bitcoin futures ETFs held their ground, losing only $55.2 million in funds, including the liquidation of one fund.
GBTC investors redeemed $14.8 billion in this quarter, and although the daily outflows have slowed down, strategic questions about what Grayscale will do next still remain.
Investors are looking for the next catalyst, which may include increasing opportunities to access ETFs through various investment channels, such as wirehouses.
With a few weeks left until the halving event, this event is more important for miners than for prices, as the reduction in supply is relatively small in terms of trading volume.
However, the halving has always been a significant indicator of Bitcoin price cycles, and if this pattern repeats, it indicates that investors can still expect some optimal returns.
ETF inflows drive strong start to the year for performance-based ETFs
Bitcoin experienced a remarkable 67.0% surge this quarter, making it one of the most impressive first quarters to date. This surge was mainly driven by the enormous demand for recently launched spot Bitcoin ETFs. Despite a slow start and subsequent outflows, spot ETFs, particularly IBIT, have been the best-performing ETFs in history. Individual investors and advisors flocked to them, previously hesitant to invest in spot Bitcoin through other channels but now fueled by the surge in demand.
Most other asset classes performed well this quarter, supported by a backdrop of low unemployment, a strong economy, and inflation that, although not fully eliminated, is far below its peak. The market has not realized its expected rate cuts, as the market has been expecting the FOMC to cut interest rates “in 6 months from now” for over a year. Considering inflation data, we do not believe the Federal Open Market Committee will meet this expectation, but given the performance of risk assets over the past year, it doesn’t seem necessary for Bitcoin, stocks, gold, and real estate to perform strongly.
First Quarter Seasonal Deliveries
Historically, Bitcoin has performed well in the first quarter, and this trend continues this year. The first quarter of 2024 is the fourth best first quarter in Bitcoin history and the second best first quarter since 2013, setting a positive tone for the year ahead. While the launch of ETFs has provided a significant boost, the upcoming halving will also play a crucial role in the price cycle. Although the reduction in supply caused by the halving is substantial (equivalent to 450 bitcoins per day or $31.5 million per day at $70,000 per BTC), its impact may not be as significant as the surge in demand brought about by the introduction of ETFs.
Increasing Correlation, but Still at Low Levels
Bitcoin’s correlation with other major asset classes, such as stocks and the US dollar index, has increased from near-zero levels at the end of 2023 (in absolute value), but has decreased compared to gold. However, we believe this shift is not significant, as the 90-day rolling correlation of Bitcoin has historically fluctuated between +0.3 and -0.3. The measures taken in response to the Covid-19 crisis in terms of monetary and fiscal interventions have altered Bitcoin’s relationship with other assets, but this change appears to be temporary. With the era of money printing and rate hikes to combat inflation behind us, Bitcoin’s long-term correlation is showing signs of returning to historical average levels.
Events Impacting This Quarter
ETF Dominates the First Quarter
Undoubtedly, the most notable moment this quarter was the approval and launch of spot ETFs in the United States. It has been an eventful journey:
The SEC’s Twitter account was hacked, prematurely announcing approval, only to be approved before the final decision deadline, with initial fund inflows lower than expected, leading to outflows, and then a significant turnaround. This has been the strongest fund inflow for an ETF launch. As we end the first quarter, it is clear that ETFs, both overall and individually, have been hugely successful.
With that in mind, we would like to share the end-of-quarter results for ETFs overall and individually. At first glance, all ETFs experienced inflows, except GBTC, which showed outflows, and BTCO had redemptions on certain days, possibly related to Galaxy’s selling activities. ARKB had a single-day outflow on April 2 (Tuesday), marking the first true outflow among non-GBTC and BTCO ETFs.
BlackRock and Fidelity Lead the Challengers
The net inflow for the ETF industry this quarter reached a staggering $12.1 billion. Interestingly, while GBTC faced $14.8 billion in outflows, nine “challenger” ETFs attracted a significant net inflow of $26.9 billion. GBTC continues to maintain its lead in terms of assets under management, followed closely by BlackRock’s iShares fund (IBIT) in second place and Fidelity (FBTC) in third place. Notably, crypto-native companies ARK, 21Shares, and Bitwise occupied the fourth and fifth spots, showcasing impressive marketing capabilities. This success puts them ahead of well-known firms such as VanEck, Invesco, and Franklin Templeton.
BITO and Futures Funds Perform Well
Following the launch of spot ETFs, BITO and other Bitcoin futures-based ETFs have shown surprising resilience. Despite BITO having a higher expense ratio (0.95%) compared to spot ETFs (excluding GBTC), along with roll costs and spot tracking error, investors redeemed only $55.2 million from futures funds. The recently closed VanEck Bitcoin Strategy ETF (XBTF) was a casualty in the competitive ETF landscape, but the AUM of Bitcoin futures ETFs still stands at $3.1 billion. This highlights investors’ recognition of the value as pioneers and the potential importance of the derivatives market, especially with spot ETFs still awaiting approval for options trading.
Leveraged Futures Funds Rise from Obscurity
Before the launch of spot ETFs, assets managed by Volatility Shares’ 2x Bitcoin Strategy ETF (BITX) stood at $222.5 million. In comparison, BITO had an AUM of $2.2 billion at that time. This quarter, leveraged futures funds, such as BitX and the newly launched BFTX in February, accumulated over $1 billion in funds. By the end of this quarter, these leveraged futures funds, with a leverage ratio of 2x, currently hold more CME-traded Bitcoin futures than BITO. Clearly, investors have shown a preference for funds like BitX to capitalize on market trends, considering the fund’s expense ratio of 1.85%, which is particularly noteworthy.
Investors Exit Canadian ETFs
It is fascinating how US investors found a refuge in Canadian spot ETFs, which launched in February 2021 as viable alternatives to US options like GBTC. The latest quarterly data shows that these funds experienced outflows of $423.6 million, reflecting waning interest from US investors. Our speculation is that a significant portion of these funds may have flowed back into US ETFs.
The Grayscale Dilemma
As one of the most closely watched funds in the market, GBTC has garnered widespread attention due to its product-related outflows. When ETF trading began, GBTC had a significant advantage with an AUM of $28.6 billion. However, it did have a notable disadvantage, with a 1.5% expense ratio, five times higher than its closest competitor. By the end of this quarter, after processing $14.8 billion in redemptions, GBTC’s AUM lead has significantly narrowed to $23.6 billion, with IBIT at $17.8 billion. We estimate that $4.8 billion of these redemptions are related to the resolution of Genesis bankruptcy, Gemini Earn program, and FTX liquidation, with the remaining approximately $10.1 billion coming from other GBTC holders’ redemptions. The pressing question is when these redemptions will stop, and what strategy Grayscale should adopt to address this effectively.
It is worth noting that the redemption volume seems to be slowing down recently, with daily redemptions ranging from $75 million to $82 million over the past three days. This is a significant decrease compared to the daily average of $318.1 million in March. Although the growth rate has significantly slowed, accurately predicting the total outflow from an external perspective remains a challenging task, which is why we have not made specific forecasts.
In many ways, Grayscale holds the key to shaping its future. While it may lower fees to compete with industry giants like BlackRock and Fidelity, this move may not be financially optimal considering the generally lower fee structure of competitors. Despite someAs a professional translator, I am providing the following translation of the news article:
Companies offer fee waivers or no fees at all, but their standardized fee ratios are still significantly lower than GBTC’s 1.5% fee. Grayscale plans to introduce a low-cost version of GBTC under the BTC code, similar to how GLD/GLDM and IAU/IAUM operate in the gold ETF market, which is a step in the right direction. However, the launch of this product may face delays as it requires approval from the SEC. Perhaps that is why recent comments from the CEO of Grayscale suggest that they may be considering reducing the fees for GBTC.
Solving the 2022 Problem
As we look back on the past quarter, it is clear that significant progress has been made in addressing the challenges that arose during the 2022 crash. From the conviction of Sam Bankman-Fried (SBF) to Gemini’s commitment to fully reimburse Earn investors, and with the impending verdict of Zhao Changpeng (CZ), the cryptocurrency landscape is experiencing a wave of closure and progress. Additionally, companies like Genesis, Celsius, BlockFi, and FTX have shown commendable dedication in successfully navigating bankruptcy proceedings. This period marks a turning point for the industry, demonstrating resilience and determination in overcoming obstacles.
Bitcoin Hits an All-Time High
On Tuesday, March 5th, Bitcoin broke through the $69,000 mark and reached an all-time high, marking a historic achievement. This extraordinary milestone signifies a recovery from the 846-day downturn that began on November 10, 2021. Following the new high, Bitcoin continued to touch $73,835.57 (on Coinbase), indicating that it is not ready to slow down. Our analysis of blockchain data from previous cycles suggests that there may be more exciting things to come.
This recovery is far ahead of previous retracement recoveries. The recoveries in the first two cycles occurred 778 days and 716 days after the bottom, while this cycle’s recovery occurred only 470 days after the bottom. In this sense, this recovery is “ahead of” the normal recovery we expected. That being said, the previous two recoveries did not have the strong catalyst of a US spot ETF.
Hashrate Continues to Rise
Bitcoin’s hashrate, a measure of the collective computing power of miners, continued to grow by approximately 15% this quarter. This is due to the economic benefits for miners from the price increase. Transaction fees have fallen from the peak we saw last year, driven by inscriptions/serial numbers.
Despite the continuous increase in hashrate, Bitcoin’s hash price (the reward miners receive for their hashing work) experienced a significant increase this quarter. This can be attributed to a 67.0% price increase this quarter, far exceeding the 15% growth in hashrate. As the inscription/serial number trend declined from its peak, the transaction fee hash price (the fee miners earn from transaction fees) has returned to more typical levels. Nevertheless, the hash price has remained stable at around $100/PH/s.
Inscription Craze Slows Down
As the digital asset world continues to evolve, Ordinals launched a groundbreaking experiment a year ago that completely changed the data encoding on the Bitcoin blockchain. Starting with NFTs primarily in image form, this innovative approach paved the way for the emergence of BRC-20 in the spring of 2022, introducing fungible assets on Bitcoin, particularly in the limited utility of memecoins. Undeniably, memecoins have been a popular trend in this cycle, although the popularity of BRC-20 has declined.
Regulatory Updates
This quarter saw several significant regulatory updates, with the largest update related to the approval of a US spot Bitcoin ETF. Two other important updates were related to ongoing court cases. In the SEC’s lawsuit against Coinbase, the judge denied Coinbase’s motion to dismiss most of the charges, including acting as a clearing agency, broker-dealer, and exchange, as well as the unregistered issuance of securities services under its custody. In the SEC’s case against Ripple, the agency is seeking a $2 billion fine and penalties for violations related to the unregistered primary sales of securities. Lastly, many sponsors hope to obtain approval for a US spot Ether ETF and have submitted applications that require a response from the SEC starting in May.
Cryptocurrency Company Stocks Soar, but Mining Stocks Decline
“Cryptocurrency companies,” especially Coinbase, MicroStrategy, and Galaxy Digital, saw significant increases in their stock prices in the first quarter as the value of assets and operational business related to cryptocurrency prices may have improved during this period. On the other hand, stocks of Bitcoin miners have continued to underperform. Our speculation is that some of this may be attributed to concerns about the upcoming halving, while others may be due to the dilutive impact of stock issuances within the industry.
First Signs of Token Transfer by Long-Term Holders
One key indicator we analyze is the ownership period of Bitcoin and the proportion of Bitcoin held for a year or longer without being transferred. This data provides valuable insights for timing the market cycle. When prices rise, long-term holders tend to transfer their tokens, potentially selling, while during price declines, long-term investors hold onto their tokens. In the last quarter, we observed a slight decline in the percentage of Bitcoin held for over a year, indicating that long-term holders are starting to transfer their Bitcoin. This trend is a positive signal for the continuation of the cycle, as this ratio has not experienced a significant decline seen in the peak of the previous three cycles.
Looking Ahead: The Fourth Halving is the Next Major Event
The upcoming Bitcoin halving event on April 20th marks an important milestone as the block subsidy for miners will be reduced from 6.25 Bitcoin to 3.125 Bitcoin. This adjustment will halve Bitcoin’s daily production, reducing it from 900 Bitcoin to 450 Bitcoin, which means the daily supply will decrease from $63 million to $31.5 million at a price of $70,000 per Bitcoin. While this reduction is more significant for miners who heavily rely on block subsidies for income, its impact on traders and investors is relatively limited. The daily addition to supply reduced by $31.5 million accounts for only a small fraction of the global spot trading volume, which reaches billions of dollars daily.
In terms of investor interest and price movements, the focus should be on the demand side. Recent trends such as net inflows into ETFs highlight the increasing importance of demand dynamics in influencing Bitcoin’s value.
While the halving event may not immediately serve as a price catalyst, historical data shows that it plays a crucial role in shaping Bitcoin’s price cycles. Typically, there is a preparatory phase before the halving, followed by substantial returns after. Given the positive price performance leading up to the current halving, investors have reason to be optimistic about Bitcoin’s future potential.
ETF Access Unlock
The flow of funds in and out of the spot ETF complex will be closely monitored in the future. One of the most common inquiries we receive about ETFs is regarding the investors behind these funds. Based on our observations, retail investors appear to be the primary buyers, followed by registered investment advisors (RIAs), family offices, and hedge funds. While asset management firms are responsible for creating these ETFs, it is worth noting that they are typically not the ones acquiring these ETFs. Currently, brokers may or may not provide access to these ETFs for their clients. However, the potential for advisors to add them to clients’ fully discretionary accounts could bring incremental opportunities. Additionally, incorporating allocations into clients’ model portfolios can further enhance the attractiveness and utilization of these ETFs.
Ether ETF and Bitcoin ETF Options: Key Regulatory Events
With the approval of the Bitcoin spot ETF in January, there was excitement about the potential for an Ether spot ETF. Virtually all the same Bitcoin spot ETF sponsors have submitted applications to the SEC for Ether spot ETFs, including BlackRock, Fidelity, and Grayscale. Unfortunately, while there are already Ether futures-based ETFs on the CME, the chances of approval for a spot Ether ETF are not high. There are still six weeks until the final deadline for SEC response from the earliest applications, and we have seen zero meetings between the SEC and issuers. Prior to the launch of the Bitcoin spot ETF, we saw at least two rounds of meetings between sponsors and the SEC.
Another regulatory item we have been monitoring is the approval or denial of allowing options trading on spot ETFs. Many exchanges have submitted 19b-4s to list and trade options on various ETFs. If these filings follow the normal 240-day approval timeline of other 19b-4s, September 21st will be the final deadline for the SEC’s response, and the SEC may collaborate with the CFTC on this matter. We believe that the approval of options will not have a significant impact on ETF flows or AUM, but it may alter trading volumes and potential bid-ask spreads with increased demand for Delta hedging by traders.
Join Our Quarterly Webinar
Please join us on Thursday, April 11th, at 10:30 AM Eastern Time as we delve deeper into all of these events and gain further insights from the subject matter experts at NYDIG. Engage in informative discussions with Global Head of Business Development George Kirchner, Global Head of Sales and Trading Pete Janney, Global Head of Public Policy and Regulatory Affairs Ben Lawsky, and Global Head of Research Greg Cipolaro. Ensure your spot by registering below.
Tags:
2023 market trend
BlockFi
BRC
Celsius
ETF
Genesis
NYDIG
SEC
Ethereum
Bitcoin
Bear market
Bull market
Market trend
Zhao Changpeng
Source link:
https://news.marsbit.cc/20240409084734967860.html
Disclaimer: The opinions expressed in this article do not constitute investment advice.
Original article link: https://www.bitpush.news/articles/6588043
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