ETFs set for record 2024 — but how are Bitcoin funds doing?

Exchange-traded funds bucked the trend with above-average volumes in August, but Bitcoin ETFs experienced major outflows towards the end of the month.

While summer is traditionally a slow month in the financial world, there was an insatiable appetite for exchange-traded funds in August, new figures show.

Net inflows jumped to $129.7 billion last month, according to BlackRock, meaning the vibrant industry is on track to surpass the $1.3 trillion annual record set in 2021.

The launch of Bitcoin ETFs in January was something of a success story, with the latest figures showing that major US funds now hold 4.58% of BTC’s total market value.

BlackRock’s iShares Bitcoin Trust is the leader in this field with $20.56 billion in assets under management.

However, BTC ETFs have faced a lot of turbulence in recent weeks, with the market experiencing eight consecutive days of outflows from August 27 to September 6.

This coincided with the world’s largest cryptocurrency falling to as low as $52,598.70, with some doomsayers predicting that a prolonged drop below $50,000 was on the cards.

Source: sosovalue.xyz

Looking closely, it is undeniable that tensions surrounding the state of the US economy are the reason for the recent sluggish performance of BTC ETFs.

While inflation has now fallen to 2.5% (not far from the Federal Reserve’s 2% target), the “weak” jobs numbers have some investors worried that a recession could be on the horizon.

The Bank of England and the European Central Bank have moved to cut interest rates, but it remains to be seen whether Fed Chair Jerome Powell will follow suit next week.

According to the CME FedWatch Tool, which tracks interest rate traders’ sentiment, there is an 85% chance of a 25 basis point cut on Sept. 18.

On the other hand, 15 percent of those who expect the US Federal Reserve to go even further than this. This segment predicts that the reduction could reach 0.5 percentage points.

Powell has so far been extremely cautious about taking action and has said he wants to see more data to prove inflation is under control, but some critics now fear that the cut may be too late.

All of this may indicate why there is so much fatigue in the crypto markets right now; a score of 37 on the Fear & Greed Index reflects tension among investors.

But the bigger question now is: what does the rest of the year hold for Bitcoin ETFs and are there any trends since the beginning of the year?

Who is buying Bitcoin ETFs?

You could argue that there is an unfair expectation that BTC ETF inflows will be “only upwards” and continue to increase in a straight line.

But pullbacks were to be expected, and considering that Bitcoin is a relatively new asset class, it’s understandable that some investors might be wary of its volatility.

Jim Bianco, President of Bianco Research, shared his interesting analysis of how exchange-traded funds based on BTC’s spot price have performed since January.

His research reveals that inflows have slowed down significantly recently, reaching $12 billion across all BTC ETFs in the first two months, but falling to $4 billion in the following six months.

When Bitcoin fell to $52,900 on Friday, investors were facing a total of $2.2 billion in unrealized losses, a record high.

1/8

Spot BTC ETFs update

tl:dr
* Inputs are now outputs
* Owners are experiencing record losses
* Advisors * Current average deal size

This is not an adoption vehicle. Instead, it is a small tourist vehicle and is going back to Tradfi on-chain.

See posts #4 and #8

— Jim Bianco (@biancoresearch) September 8, 2024

While BTC ETFs are touted as a way for institutional investors and high-net-worth individuals to gain exposure to the cryptocurrency’s price fluctuations without directly owning the asset, Bianco argues that “small tourist online retailers” represent the largest audience for these ETFs.

Overall, the average trade size for these exchange-traded funds is $12,000, he noted, which is well below trades seen in ETFs in other sectors.

Moreover, Bianco estimates that only 15% of Bitcoin ETF adoption comes from traditional financial institutions, meaning there is still more work to be done.

He wrote that it could take another four years for momentum to build in X, and that institutional investors may need more convincing before they decide to commit funds:

The first eight months of spot BTC trading have shown that “build (Spot BTC ETFs) and boomer future” is never a “thing.” It just takes patience and a few more seasons (including a winter or two) and development breakthroughs.