How Much Capital Flowed into the Crypto Market After Bitcoin Spot ETF Approval？

On January 11th, the U.S. Securities and Exchange Commission (SEC) finally approved the application for a Bitcoin ETF, with 11 Bitcoin ETFs being listed simultaneously. This news ushered in a new round of growth in the entire cryptocurrency community, with the price of Bitcoin gradually rebounding after briefly dropping from $49,000 to $38,500, and successfully breaking through the $53,000 mark. So, is the Bitcoin ETF truly becoming the biggest catalyst for this bull market in the entire cryptocurrency market？ PANews has conducted a comprehensive review of the dynamics of Bitcoin ETFs in this stage. Over a period of more than 40 days, how much capital inflow has Bitcoin ETFs brought to Bitcoin？

Net Increase of 110,000 Bitcoins in Holdings After ETF Approval, Total Holdings Reach $37.21 Billion

Since the approval of ETFs up to February 25, 2024, the number of Bitcoins held by the 11 ETFs has increased from 619,491 to 732,549, with a cumulative increase of 113,058 Bitcoins. The total holdings of Bitcoin ETFs amount to 732,000 Bitcoins, with the total assets under management increasing from $28.59 billion to $37.21 billion, representing a cumulative increase of $8.6 billion in assets under management.

Based on this data, the average holding price of Bitcoin ETFs during the initial phase of approval was approximately $46,163, while the current average holding price is $50,803.

Currently, Bitcoin ETF holdings account for 3.73% of the total supply, which exceeds the number of Bitcoins in 596,000 addresses on Binance exchange wallets (according to coincarp data). The current holdings of the top 30 Bitcoin spot exchanges amount to approximately 1.2 million Bitcoins (excluding the amount held in ETF custody). Considering the net increase of 110,000 Bitcoins, the direct additional circulation demand brought by ETF approval accounts for approximately 9.34% of the total, which directly stimulated the price of Bitcoin to rise to over $53,000.

Grayscale Sells 175,000 Bitcoins, BlackRock Buys 127,000

Although the overall holdings of Bitcoin ETFs have increased, in the days following the approval of Bitcoin ETFs on January 11th, the price of Bitcoin experienced a significant drop from $49,000 to $38,500. This sharp decline was primarily due to selling pressure from Grayscale.

Since investors do not directly purchase Bitcoin when buying ETFs, ETF issuers need to purchase the corresponding Bitcoin spot market through cryptocurrency exchanges like Coinbase to match market demand. Consequently, institutions like Grayscale, which previously held Bitcoin through products like Grayscale Bitcoin Trust (GBTC) at a discount, needed to sell corresponding Bitcoin shares to eliminate the discount after the approval of ETFs.

Before the approval of Bitcoin ETFs by the U.S. SEC, Grayscale had been the largest holder of Bitcoin, and due to the nature of GBTC as an irredeemable trust fund, Grayscale's Bitcoin holdings had remained constant. However, this changed after the approval of Bitcoin ETFs. As ETFs have redemption features, Grayscale's Bitcoin holdings began to rapidly decrease, dropping from 617,000 to 445,000.

There are several factors contributing to this situation. The most significant reason is that Grayscale charges management fees about six times higher than its competitors, based on the management fees of various ETFs currently disclosed. Most ETFs have management fees ranging from 0.49% to 0.19%, while Grayscale's management fee remains at 1.5%. This is approximately six times higher than its competitors, making Grayscale's management fee disadvantageous for large institutional investors who invest in ETFs.

On the other hand, Ark, which was among the top ten holders of GBTC, has established its own ETF (ARKB) and is also transferring funds to its own ETF pool. Additionally, GBTC no longer has the arbitrage space for discounts, leading many GBTC holders to transfer their positions.

In contrast, BlackRock's IBIT, launched on January 10th, has increased its holdings from 228 bitcoins to 126,900 bitcoins. BlackRock is the world's largest asset management company, with assets under management of approximately $8.9 trillion globally. In terms of customer resources and brand effects, it is one of the most competitive players among many ETF products. Currently, the combined holdings of Bitcoin ETFs managed by BlackRock and Fidelity Investments exceed 190,000, surpassing MicroStrategy's holdings of 190,000 bitcoins. Another ETF issuer, Fidelity, has also increased its holdings to 91,600 bitcoins. These two institutions have almost absorbed all the bitcoins sold by Grayscale. Therefore, from this perspective, the increase in Bitcoin ETF holdings has not yet shown significant effects but is in a stage of competition among various issuers.

Coinbase Custodies 637,000 Bitcoins, Custodial Fees Expected to Exceed $30 Million in 2024

After the approval of ETFs, various ETF fund companies seem to have become the most sought-after enterprises in the market. In fact, this policy implementation could potentially benefit Coinbase the most, offering it the opportunity to regain its position as a leader in the cryptocurrency exchange market in 2024.

Among all the issued ETFs, apart from Fidelity, which self-custodied 91,000 bitcoins, almost all other ETF funds have chosen Coinbase as the custodian for holding bitcoins. Currently, Coinbase holds 637,000 bitcons for ETF issuers, accounting for 86.9% of all ETF holdings, surpassing Binance's holdings of 590,000 bitcoins.

According to Coinbase's financial report for the fourth quarter of 2023, the revenue was $953.79 million, surpassing the market's general expectation of $822.36 million. The financial report indicated that Coinibase's custodial revenue from customer assets in 2023 amounted to $20 million. Based on the industry's lower fee rate of 0.1%, the current custodial funds of Bitcoin ETFs, totaling $32.4 billion, will bring Coinbase revenue of $32.49 million in 2024, which is expected to increase with the growth of ETF scale in the future.

Apart from Grayscale, BlackRock and Fidelity Investments are the most notable pillars among the current ETF issuers. BlackRock currently has 427 ETF products, with its IBIT product having total assets under management (AUM) of $6.5 billion, ranking 82nd among BlackRock's ETF products. As the market matures, IBIT's ranking within BlackRock's ETF products is expected to continue to rise. Another asset management giant, Fidelity Investments, follows closely behind with approximately $4.65 billion. Currently, the total AUM of Grayscale, BlackRock, and Fidelity Investments accounts for 90.6% of the ETF market.

Based on the fee rates of these three companies and maintaining the current shares, the estimated management fee income would be approximately $340 million for Grayscale (fee rate 1.5%), $16 million for BlackRock (fee rate 0.25%), and $11 million for Fidelity Investments (fee rate 0.25%). However, if Grayscale continues to maintain its current management fee level, it may quickly lose its current Bitcoin holdings size.