Bitcoin liquidity is experiencing a significant shift towards the United States, driven by the emergence of Spot Exchange-Traded Funds (ETFs) in the crypto market. This transformation is reshaping the dynamics of crypto markets globally, with several key factors contributing to this trend.
Despite initial concerns, the introduction of US spot Bitcoin ETFs has actually led to better liquidity in the cryptocurrency market. This liquidity boost is facilitating smoother trading and investment processes, further fueling market participation.
Bitcoin’s liquidity migration is fueled by Spot ETFs
BTC has become easier to trade on US crypto exchanges than on platforms overseas, owing to the impact of the country’s new exchange-traded funds on the largest digital asset.
According to statistics from research firm Kaiko, US trading venues have accounted for nearly half of the bids and offers within 2% of Bitcoin’s mid-price this year, a timeframe that coincides with the launch of US spot ETFs.
According to this statistic, non-US platforms will account for the vast majority of Bitcoin market depth by 2023. A higher number of bids and asks within 2% of the mid-price indicates stronger liquidity, allowing orders to be executed without disrupting prices.
On January 11, nine US Bitcoin ETFs debuted, and the Grayscale Bitcoin Trust, which has been around for almost a decade, was transformed into an ETF on the same day. The group, which includes offerings from BlackRock Inc. and Fidelity Investments, has attracted a net $5 billion in investor inflows thus far. The anticipation and release of the goods fueled a doubling in Bitcoin’s price over the last year.
Some analysts see the spot Bitcoin ETFs as a tipping point, claiming they will increase crypto usage. Optimists predict digital-asset trading volumes to recover from the lows left by the collapse of the FTX exchange and its sibling hedge fund Alameda Research during the 2022 bear market.
The impact of ETFs is already obvious. According to Kaiko Senior Analyst Dessislava Aubert, 57% of Bitcoin trading against the US dollar is now taking place during US market hours, up from 48% the previous year.
In the derivatives sector, open interest at Chicago-based CME Group’s Bitcoin futures market is returning to the record level set when the ETFs were approved. The rise in outstanding contracts indicates a higher interest in crypto-related exposure and hedging among US institutions.
The new ETFs measure their net asset value against specialized benchmarks at the US closing every workday, which aids in Bitcoin price discovery.
Crypto maintains its volatility stature
While the eleven bitcoin ETFs that debuted in mid-January have received historic inflows from a wide range of retail and institutional investors, a large, hitherto untapped market awaits in the form of wealth managers who have traditionally avoided crypto.
Increased institutional investment, financial adviser acceptance, and trading by big brokerages that do not allow spot bitcoin trading will all drive another round of inflows.
While financial advisors prefer ETFs because of their low cost, accessibility, and liquidity, many are emphatic about avoiding cryptocurrencies owing to their volatility. Major asset managers, most notably the Vanguard Group, prohibit the funds from being traded on their systems, creating yet another possible obstacle to expanding the ETFs’ customer base.
In an interview at the ETF Exchange Conference in Miami Beach, Florida, last week, Invesco Ltd.’s commodity strategist Kathy Kriskey and Galaxy’s Kurz noted that education is a significant element of winning over financial advisors and their clients who want to use ETFs.
They discussed with etf.com the barriers to broader acceptance of the Invesco Galaxy Bitcoin ETF (BTCO), which has $315.4 million in assets and is roughly in the center of the spot Bitcoin ETF pack.
Matt Hougan, Chief Investment Officer of Bitwise Asset Management, said at a conference panel that he expected Vanguard, which has stated unequivocally that it will not trade spot bitcoin ETFs on its platform, to change its mind.
