Institutional Adoption of Spot Bitcoin ETFs Is Underperforming Expectations, Yet the 2016 Analog Gives Investors Hope

May 1, 2024 jasabacklink News 0

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

Bitcoin hit its lowest price level since the 27th of February earlier today, constituting the current bull cycle’s deepest retrace so far, as lagging institutional adoption dampens the uber-bullish sentiment around the world’s pre-eminent cryptocurrency. Yet, Bitcoin’s 2016 bull cycle analog gives investors some much-needed historical context, one that can play a pivotal role in establishing a sustainable base at the current price levels.

Spot Bitcoin ETFs and Lagging Institutional Adoption

The requisite Form 13F filings for Q1 2024 are due by the 15th of May. While hedge funds typically wait till the last day or so to file their holdings disclosure, most institutional investors have already done so, painting an underwhelming picture as to their exposure to spot Bitcoin ETFs.

According to Bianco Research’s Jim Bianco, an overwhelming number of buyers of spot Bitcoin ETFs fall into three categories: retail investors, hedge funds, and institutional investors with less than $100 million in assets.

Our own research proves this point. For instance, BlackRock’s iShares Bitcoin Trust (IBIT), by far the biggest spot Bitcoin ETF in the US, has just 121 institutional owners, who collectively hold 3.57 million shares of the ETF, as per the Form 13Fs filed so far.

This is not to say that no major institutional player has acquired exposure to IBIT. For instance, Quattro Financial Advisors, with a portfolio value of over $351 million, is currently leading the proverbial pack on IBIT’s institutional ownership, with 468,200 shares worth nearly $19 million. These investment titans, however, are currently an exception rather than the norm.

Concurrently, Hong Kong’s spot Bitcoin ETFs, which offer an in-kind creation/redemption model as opposed to the cash-based one enforced by the SEC in the US, have just launched with underwhelming volumes. On Tuesday, Hong Kong launched three spot Bitcoin ETFs, sponsored by China AMC, Harvest, and Bosera. The territory also launched three Ethereum-based spot ETFs. By the end of their first trading day, these ETFs had attracted just $112 million in inflows. For context, the spot Bitcoin ETFs in the US attracted a whopping $4.6 billion in inflows on their first trading day.

A recent research highlighted that Bitcoin’s price action is most sensitive to outflows from China. Given the heightened expectations of the Yuan’s devaluation in the face of the US Dollar’s relentless rise in recent weeks, some analysts expected Hong Kong’s spot Bitcoin ETFs to attract substantially larger inflows to circumvent China’s closed capital account restrictions and to hedge against the specter of an imminent devaluation. However, this thesis has yet to materialize.

Bitcoin’s 2016 Analog

Over the last 18 days, spot Bitcoin ETFs have lost around $800 million in net outflows, hammering Bitcoin’s price in the process.

Yet, according to Rekt Capital, Bitcoin’s ongoing bull cycle is eerily similar to the one back in 2016, when the world’s pre-eminent cryptocurrency experienced a ~40 percent pullback after the halving event. If this analog holds true, Bitcoin can theoretically plunge to as low as the $44,000 price handle before resuming its upward trajectory.

According to Steno Research, Bitcoin is an excellent inflation hedge. This bodes well for the prospects of the world’s largest cryptocurrency, given a re-acceleration of the CPI in the US since the start of the year.

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