In tune with the flow: February BTC ETP Recap

03 Mar 2022

In tune with the flow: February BTC ETP Recap

February was a strong month for the exchange-traded BTC funds, as we saw net inflows amounting to 5,839 BTC in February, leading the global BTC exposure of BTC ETPs to reach a new all-time high of 190,181 BTC on Feb 28th.

As bitcoin evolves from an asset traded, held, and used solemnly by cyber hornets to an asset held by cyber hornets, nation-states, and Wall Street, it becomes vital to decipher the BTC trends from the sacred realm of tradfi to navigate the market. The institutional adoption and "productification" of BTC will, with time, lead on-chain analysis to become less and less relevant. I'll get back to this another time, but in sum: you should be careful by accepting easy-going bullish or bearish narratives related to hodler behavior or exchange balances as bitcoin becomes more frequently traded in markets beyond the limits of on-chain analysis. This series sheds light on one such sector: The BTC ETP sector – allowing you to stay in tune with the current flows. February: Key takeaways

Strong growth overall in ETPs, ending the month at a new all-time high

Growth has been solid in Canada, with Canadian ETFs seeing their strongest monthly inflows since March 2021

The Brazilian Hashdex ETF BITH11 exploded in February, seeing 85% growth MoM leading the Brazilian ETF BTC balances to grow by 33% this month.

ProShares dominates the U.S. ETF market, accounting for 94% of the total U.S. BTC ETF market, and saw very strong growth from mid-Jan to mid-Feb. A combination of the futures-roll and the Ukraine war led the fund to see massive outflows in the last week of February.

Europe is the odd one out in the ETP market, seeing three consecutive months of net outflows.

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Source: Bytetree, VanEck, Proshares, Hashdex, StatusInvest

BTC ETP sector awaking from its winter-slumber

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Source: Bytetree, VanEck, Proshares, Hashdex, StatusInvest

The strong month of February is welcome after a winter slumber with two consecutive months of net outflows as the bitcoin market saw a steady grind downwards. The net inflows in February suggest a growing positive sentiment among investors seeking to add BTC exposure through traditional investment vehicles – and could imply that institutional investors are once again returning to the crypto markets. After Fidelity’s physical bitcoin ETF was rejected by the SEC, Fidelity launched a physical ETP in Europe in February, in addition to its already launched bitcoin ETP in Canada. As of now, it seems rather unlikely that we’ll see the launch of any physical bitcoin ETFs in the U.S. in the near future. Regulatory clarity post-Biden’s executive order on cryptocurrencies could change the odds, but as of now, U.S. investors seeking to invest through traditional brokerages should be prepared to stick to futures-based ETFs or close-ended funds without an active redemption program such as GBTC.

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Source: Bytetree, VanEck, Proshares, Hashdex, StatusInvest

Bitcoin ETPs are live in the EU, Canada, the U.S., and Brazil. There are also processes related to launching Australian and Indian BTC ETFs. European BTC ETPs currently dominate the ETP market. Combined, the European ETPs hold 93,618 BTC. However, Canadian, U.S., and Brazilian ETPs have seen strong inflows, while the European market seems less vibrant.

European ETFs see the third consecutive month of net outflows

European BTC ETPs saw their third consecutive month of outflows in February. Nevertheless, February was a relatively flat month overall for the European BTC ETPs, seeing net outflows of 41 BTC, leading the total BTC under management in European ETPs to decline to 93,618 BTC.

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Source: Bytetree

The European ETP market is also far more complex than those of the other exchanges, with funds using a myriad of various structures. The European market includes both tracker certificates and physically backed ETPs. The European BTC ETP market has a rich history, dating back to 2015. Until 2020 the market consisted of tracker certificates, but the launch of physically-backed ETPs with active redemption programs has shaken up the market. In February, European trackers generally saw net outflows, while the physical ETPs saw net inflows. The launch of exchange-traded bitcoin products in other jurisdictions may also be a contributor to the downward trend of European ETPs lately. Competition is only going to stiffen from here, so we could see trackers' relevance diminish with time.

Canadian ETFs experience the strongest monthly net inflow since March 2021 – Honk honk?

Canadian ETFs saw a solid month in February, seeing net inflows amounting to 4,835 BTC leading the BTC under management by Canadian BTC ETFs to grow to 66,226 BTC.

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Source: Bytetree

February was the strongest month in terms of net inflows to BTC ETFs in Canada since March 2021. The sharp growth indicates that Canadian investors are more actively seeking to add BTC exposure, a trend that the Canadian trucker movement might have accelerated. Strong inflows to Fidelity, Galaxy, and particularly Purpose caused the February growth.

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Source: Purpose

Purpose dominates the Canadian BTC ETF landscape, holding 33,502 BTC by the end of February, accounting for more than 50% of the BTC held by Canadian BTC ETF providers. Purpose saw strong inflows in February, marking an end to the stagnant trend witnessed since mid-November. February 14th -February 22nd saw the strongest seven-day inflows to Purpose since December 6th – December 13th.

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Source: Purpose

U.S. ETF in the green again, but following the invasion of Ukraine, strong outflows erupted

The U.S. BTC ETF market saw strong inflows running up towards the last week of February when geopolitical fears shook the market. Overall, February ended in the green with a net exposure increase amounting to 765 BTC, a positive sign of increased demand for BTC exposure after net outflows in January. The BTC exposure of U.S. BTC ETFs amounted to 28,682 BTC as of Feb 28th.

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Source: Bytetree

The U.S. BTC ETFs are futures-based ETFs. I have denominated the CME contract exposure in BTC of the three active funds, ProShares, Valkyrie, and VanEck, to make it easier to compare the U.S. market to other jurisdictions. While flows in these ETFs have a more complicated impact on the market than the physical ETPs, net inflows will still have a positive impact on the market, as it directly impacts the bid on CME. Market makers playing the basis arb game will react to this by increasing their short exposure on CME and adding spot bitcoin exposure to remain delta neutral. The ProShares BITO ETF dominates the U.S. BTC ETF sector, accounting for 94% of the AUM of the U.S sector.

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Source: Proshares

BITO saw substantial inflows from January 14th to February 22nd, leading the net exposure to grow by 3,095 BTC in the period. However, as the fund entered the futures roll week and Russia invaded Ukraine, the ETF experienced sharp outflows, bottoming on February 25th. However, net inflows have resumed this week amid BTC strength and the completion of the February-March rolling of the futures.

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Source: Proshares

Brazil – An overlooked market seeing very strong growth in February

Brazilian BTC ETFs are mostly overlooked - this is unsurprising given the small total AUM of 2,104 BTC. However, behind the curtain lays a market in tremendous growth. In February, Brazilian net inflows amounted to 524 BTC, a month-over-month growth amounting to 33%! The Brazilian ETF sector constitutes two pure-play BTC ETFs, Hashdex’s BITH11 and QR Asset’s QBTC11. In addition, Hashdex has also launched ETFs offering investors access to Ethereum, a DeFi themed fund, and an ETF providing exposure to a wide array of cryptocurrencies.

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Source: Hashdex, Statusinvest

The extraordinary growth in the Brazilian ETFs BTC holdings can be attributed to a massive growth in Hashdex’s BITH11 ETF. The ETF saw a 85% growth in its AUM in February, suggesting that some Brazilian investors currently have a strong appetite for BTC.

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Source: Hashdex, Statusinvest

Zooming back out: Brazil, Canada and the U.S. see strong sustained growth, while Europe is slow

In sum, Brazilian and Canadian ETFs saw the strongest growth in February. The bitcoin exposure of Canadian ETFs grew by 7% in February, while the Brazilian ETFs saw a 33% growth in February, from a relatively low level.

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Source: Bytetree, VanEck, Proshares, Hashdex, StatusInvest

The strong growth in Brazil, Canada, and the U.S. contrasts the prevailing trend in Europe - this has led Europe to see declining market dominance, which is likely to continue in the future.

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Source: Bytetree, VanEck, Proshares, Hashdex, StatusInvest

All in all, the tendency seems to be growing net inflows to the BTC ETPs. In other words: We can only expect ETPs to become more and more relevant with time, and it’s worth putting in the time and effort to understand the flows of this sector. That’s why I am cooking up this monthly ETF series, and I hope you find value in the effort!