Shukr Investments

How much of an impact do the recently approved Bitcoin exchange traded funds (ETFs) have on the price of Bitcoin? The answer seems to be "a lot" and the impact is about to increase materially. One month has passed since the SEC approved 11 Bitcoin ETFs. Prior to that approval, access to Bitcoin for the vast majority of U.S. retail and institutional investors was nonexistent. Yes, there was a closed ended fund and there were funds that invested in Bitcoin futures contracts. But such vehicles are not staples in traditional retirement plans. The approval of Bitcoin ETFs on January 10, 2024 was a watershed moment because it opened Bitcoin investment to mainstream investors. Bitcoin ETFs have low fees (as low as 0.1%) and hold physical Bitcoin which is more liquid than investment through futures contracts. And importantly, these ETFs are backed by blue chip firms that many financial advisors will invest with eyes closed. The success of the ETFs can be seen in the growth in assets under management. An ETF analyst with Bloomberg, Eric Balchunas, recently highlighted that the two largest Bitcoin ETFs by assets—Blackrock's iShares Bitcoin trust and Fidelity's Wise Origin Bitcoin Fund—gained $4.2 billion and $3.5 billion in assets respectively in a mere 30 days. Out of 5,535 ETF launches in the last 30 years, no ETF gained more assets 30 days after its launch than these two funds. The previous record holder was an ETF that garnered $2.2 billion after 30 days. Let's quantify the demand dynamics. The total Bitcoin held by these 11 ETFs on January 10, 2024 was 610,356 (note, the reason the number is so high is because one ETF, the Grayscale Bitcoin Fund, was previously a closed ended fund that launched in 2013 and converted into an ETF). The total Bitcoin held by these 11 ETFs on February 9, 2024 was 677,085—an increase of 66,729 Bitcoin in one month (see chart). So it's reasonable to assume that these ETFs resulted in new demand for 66,729 Bitcoin. While this demand may seem small compared to the total bitcoin outstanding on February 9, 2024 (19,622,100), consider that the total increase in Bitcoin supply from January 10, 2024 through February 9, 2024 was 28,238. The increase in demand from these 11 Bitcoin ETFs is more than two times the total new Bitcoin created during the period. Now for the real kicker: the supply of new bitcoin coming on the market is about to fall. While miners earn 6.25 Bitcoin for each block successfully mined today, that number is about to fall to 3.125 Bitcoin in April (called the "halving event" which occurs roughly every 4 years). There is unlikely to be a commensurate fall in the demand for Bitcoin from ETFs. Whatever one believes about Bitcoin, it's hard to see how these dynamics do not result in materially higher prices for Bitcoin this year. #investing #bitcoin The?information presented should not be construed as research or investment advice and only reflects the opinions of Shukr Investments.