June-August: Key takeaways
- Bitcoin flows remain slow after the June chaos, and activity has been muted throughout the summer. The U.S. flows suggest that the bearish sentiment is ruling the market.
- Global BTC holdings by ETPs have declined by 20,168 BTC over the last three months. The most substantial downfall coincided with a huge 24,510 BTC redemption in Purpose.
- The latter part of August saw the newly launched U.S. short BTC ETF gain traction, while long-ETFs experienced outflows, leading August to become the second-worst month in U.S. BTC ETFs since launching in October 2021
- Outside of Canada and the U.S., ETP flows remains slow, with no noteworthy developments over the last three months.
- Overall, while negative U.S. flows and a huge Canadian liquidation have reduced the BTC ETP holdings, the relatively muted activity suggests that BTC ETP owners are willing to hold onto exposure in this bear market.
BUM declining to October levels
Exchange-traded bitcoin products held 176,465 BTC by the end of August after seeing net monthly flows of -5,455 BTC. It’s three months since we last covered the ETP flows, and June was a frantic month in the ETP scene following a massive redemption in Purpose amounting to 24,545 BTC amid the crypto credit crash. June also saw the introduction of ProShares’ short BTC ETF, BITI. BITI’s exposure is included in our BTC metric, but with an inverse impact, i.e., inflows to the ETF will negatively impact the aggregated BTC exposure. The aggregated BTC exposure across all exchange-traded BTC vehicles has now fallen to its lowest level since October 2021.Preview
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Stable flows in Europe and Brazil
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U.S: Short ETF gaining traction, and GBTC discounts representing an opportunity
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Grayscale remains close-ended at huge discounts, a massive opportunity
The 3AC collapse had massive knock-on effects on GBTC, and GBTC discounts have stabilized at new lows. ETFs offer daily redemptions, enabling prices to align with their NAV through arbitrage dynamics. Grayscale attempted to convert its fund into an ETF this summer but was denied, like all other U.S. spot-ETF attempts. Grayscale has since sued the SEC for the denial, battling to sway the regulator and setting the stage for U.S. spot-based ETFs. Still, it’s very unclear what the outcome will be in the short to medium term. Nevertheless, regardless of what happens in the next year(s), Grayscale’s 33% discount to spot represents a very nice opportunity for long-term BTC investors. Here’s why:Grayscale has a two percent yearly management fee. At a 33 percent discount, the prices implies that Grayscale will have to run as is for 20 years to justify the current discount.Preview
Grayscale trade consideration
A GBTC approval would create Ragnarok in the market, caused by enormous arbitrage flows. At its current discount and size, we would see huge arbitrage flows in the market driven by redemptions, selling of BTC, and bidding of GBTC, which may negatively impact the market short term. I believe this will have a short-term negative impact on the crypto market whenever this happens. However, an approval will likely not come as a sudden shocker for market participants. Discounts will likely narrow as the likelihood of a successful conversion increases. The short-term negative impact due to arbitrage dynamics of such an approval will have far more devastating effects on BTC spot than on GBTC, which will be bid up due to the arbitrage it represents.Canadian BTC ETFs exposure plunges to 17-month low
The largest Canadian bitcoin ETF, Purpose, saw its AUM plunge 50% on Friday, June 17th, indicating a massive capitulation from one or more forced sellers. This is by far the most severe redemption we’ve seen in the relatively short-lived BTC ETF history. It contributed to shrinking Purpose’s bitcoin under management down towards lows not seen since October 2021. The enormous outflows were likely caused by a forced seller in a huge liquidation, and the deployment of these 24,000 BTC may have triggered BTC’s move down towards $17,600 over the following weekend.Preview
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