Institutional investment vehicles linked to Bitcoin have witnessed a significant surge in trading volumes, propelled by growing anticipation of regulatory changes in the United States. Data from sources including Bloomberg indicates that Bitcoin exchange-traded funds (ETFs) and related products are approaching record levels of weekly inflows, with ProShares and Grayscale leading the charge.
The crypto market has been abuzz with speculation surrounding the possibility of the U.S. approving a Bitcoin spot price-based ETF, and this excitement has reverberated throughout the entire cryptocurrency ecosystem. In addition to cryptocurrency exchanges and mining companies, institutional investment options have seen a resurgence in demand.
Notably, the ProShares Bitcoin Strategy ETF (BITO), the first futures-based ETF approved in the U.S. in 2021, traded an impressive $1.7 billion in the past week, marking the second-highest weekly trading volume since its launch. Eric Balchunas, a senior ETF analyst at Bloomberg, commented on the surge, highlighting that the Grayscale Bitcoin Trust (GBTC) also saw substantial trading volume, amounting to $800 million. This boost in demand for GBTC contributed to reducing its discount to the Bitcoin spot price to a two-year low.
Implications of strong Bitcoin ETF trading
The recent surge in trading activity for Bitcoin ETFs raises questions about the appetite for a potential spot Bitcoin ETF in the United States. While experts believe that a spot ETF might not set records immediately upon its launch, the robust trading volumes of futures-based ETFs like BITO suggest a substantial audience interested in cryptocurrency exposure through these investment vehicles.
William Clemente, co-founder of the crypto research firm Reflexivity, weighed in on the resurgence of ETF trading, describing it as being “back in full steam.” This sentiment underscores the growing interest in cryptocurrencies among both institutional and retail investors.
Grayscale’s Bitcoin Trust (GBTC) has experienced a remarkable resurgence in recent months, even before Bitcoin’s price surged by 15% last week. Key legal victories in the arduous journey to convert GBTC into a spot ETF played a pivotal role in this resurgence. Grayscale’s product now trades at an implied share price that is only 13.1% below the current Bitcoin spot price, marking the narrowest discount since November 2021 when Bitcoin reached all-time highs.
The narrowing discount of GBTC relative to the Bitcoin spot price has raised eyebrows in the crypto community. Some traders speculate that traditional finance, often referred to as TradFi, may possess inside information or insights that the broader market is not privy to. This notion has prompted discussions about whether institutional players are positioning themselves for a significant development in the cryptocurrency space.
Mister Crypto, a prominent Bitcoin and altcoin trader, remarked on the narrowing GBTC discount, stating, “Maybe TradFi knows something we don’t know yet…” This sentiment underscores the potential information asymmetry between traditional finance institutions and retail investors.
While the broader market speculates about potential insider knowledge, investment management firm ARK Invest has taken action. As GBTC’s share price gained ground, ARK Invest decided to reduce its holdings in GBTC. This move comes as ARK Invest plans to launch its own Bitcoin spot ETF. Notably, GBTC had constituted 10.24% of ARK’s Next Generation Internet ETF, marking its first change in holdings since November 2022.