Bitcoin ETFs Hit $30B in Trading Volume, Draw $1.5B in New Bitcoin in First Month

The launch of spot Bitcoin ETFs in January 2024 has sparked a fierce competition among the providers of these innovative products. The first month of trading saw a remarkable inflow of $1.5 billion, equivalent to about 32,000 Bitcoin, into these ETFs, according to BitMEX Research. The total volume of these ETFs also surpassed the $30 billion mark, as reported by The Block.

However, not all ETFs are created equal. A significant shift in market dominance has occurred among the Bitcoin ETFs, with the Grayscale Bitcoin Trust (GBTC) losing its initial edge over its rivals. GBTC, which was the first and largest Bitcoin ETF, accounted for nearly half of the volume on its debut day, but saw its share drop to 38% by Feb. 2.

Cumulative Spot Bitcoin ETF Volumes | Source: The Block

On the other hand, two other ETFs, namely BlackRock’s IBIT and Fidelity’s FBTC, have gained traction and increased their market shares by roughly 25% and 20%, respectively. The main reason for this shift is the difference in fee structures; GBTC charges a hefty 1.5% annual fee, while FBTC and IBIT offer a much lower 0.25% fee.

The lower fees make FBTC and IBIT more attractive to investors who want to gain exposure to Bitcoin without paying a premium. Moreover, these ETFs are backed by physical Bitcoin, meaning that they hold the actual cryptocurrency in custody, rather than relying on derivatives or other instruments. This reduces the risk of counterparty default and ensures that the ETFs track the price of Bitcoin more closely.

Spot Bitcoin ETF market share | Source: The Block

GBTC, which started as a private trust before converting into an ETF, has also suffered from a decline in its Bitcoin holdings. GBTC initially held 620,000 BTC before the ETFs began trading, but now has only about 477,000 BTC, a 26% drop from the peak. This is partly due to the redemption requests from its shareholders, who wanted to switch to other ETFs or sell their shares in the secondary market.

The competition among the Bitcoin ETFs is expected to intensify as more providers enter the market and offer new features and benefits to attract investors. Some of the potential innovations include leveraged ETFs, inverse ETFs, and ETFs that track other cryptocurrencies besides Bitcoin. The growth of the Bitcoin ETF market will also have implications for the broader cryptocurrency industry, as it will increase the liquidity, adoption, and regulation of the digital asset class.

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