Bitcoin ETF: Beyond Journey’s End

한국인

19 Jan 2024

Before the official approval from the SEC, BTC futures funding rate was traded over 40% annualised interest at the beginning of 2024 and quickly burst on 3rd January, resulting in over $684 million positions being liquidated. Since then, BTC futures had an average 11.72% annualised funding rate or lower long-to-short ratio. Market sentiment is often self-fulfiling, the louder the "sell the news" noises, the likely the people de-risks or takes the profit that is in hand. Short term holder Spent-Output-Profit-Ratio (SOPR) has dropped to the lowest point since October 2023.

In short, after BTC spot ETF approval, there's a lack of short-term catalyst for BTC before halving event in April. The sales of Grayscale GBTC and Celsius assets further add selling pressure to the whole crypto market.

The introduction of BTC Spot ETF will slowly increase crypto proportion in traditional portfolio allocation and the correlation with the macro economy. A 2023 survey reveals 90% of pension funds are considering investing in crypto assets and another survey from KPMG reveals 54% of family offices and high-net-worth-individuals aim to allocate 5% to 30% of their portfolio to crypto assets. Instead of a huge meteor, we would rather metaphorise the capital injection from BTC ETF as prolonged rainfall. In order to acquire significant market share, marketing efforts for Bitcoin from Blackrock and other investment managers are expected to be continuously visible in public sight in the upcoming months.

Despite the slowdown in market momentum, the BTC Spot ETFs indeed introduced $818.9 million net inflow, which is lower than many analyst forecast. Bloomberg Intelligence Senior ETF Analyst, Eric Balchunas expected a $2 billion asset injection on the first day of trading. Although the momentum is slower than expected, it is expected to continue introducing over $10 billion new inflows or $20 billion in AUM by the end of 2024, based on Valkyrie co-founder Steven McClurg. Based on the average flow-to-price multiplier of S&P 500, 16x, and given BTC, it is way more volatile with 1.31 Beta to S&P 500, we assume BTC flow-to-price multiplier to be 21x. This new inflow alone gives us a BTC price projection increase to $54,750 without considering halving event, market sentiment and other industry development.

2024 is expected to be different from 2023, where BTC dominance increased from 42% to 52% in 2023, outperforming major altcoins performance, while the capital is starting to show signs of returning to Ethereum from December 2023 to 2024. ETH Spot ETF is expected to be the next candidate to be approved because major institutions such as Blackrock have filed for the application with SEC and it, in fact, is the second largest crypto asset held by current crypto funds. According to CoinShares, ETH has $11 billion AUM from multiple existing funds, while Solana secured the third place with $750 million AUM. Other assets such as ETC (Proof-of-work Ethereum) have a higher chance of being approved due to its consensus mechanism and XRP because of the victory lawsuit against SEC with note by the judge XRP itself is not a security.

Moving forward tokenisation or real-world-assets (RWA) is the next spotlight after ETF. Rather than new market "creation", tokenisation "import" the existing market into blockchain to inherit the lower cost structure, instant settlement and broader liquidity feature in blockchain. Protocols such as Avalanche (institution permissioned blockchain), Chainlink (tamper-proof data transfer between blockchains and real-world finance), Injective (RWA module for tokenise tokens listing in decentralised exchanges) etc are worth paying attention in 2024.

Lastly, Bitwise and VanEck will donate part of their BTC ETF profits to Bitcoin open-source development. This will motivate Bitcoin developers in a sustainable manner to bring better and faster growth in the Bitcoin ecosystem. Bitcoin inscription and BTC "Layer 2" would be the biggest beneficial parties for the improvement of the Bitcoin ecosystem.

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