Spot Bitcoin ETFs Gain $4 Billion Inflows, Squeeze Higher-Cost Crypto Funds

In a recent development, spot bitcoin exchange-traded funds (ETFs) have attracted a staggering $4 billion in inflows, leaving higher-cost crypto funds in the U.S. facing significant outflows. CoinShares' latest report reveals that since the launch of these new ETFs on Jan. 11, incumbent crypto fund issuers have witnessed outflows totaling $2.9 billion.

Grayscale's GBTC Dominates Outflows

Grayscale's GBTC takes the lead in outflows, with over $2.8 billion exiting the fund. This comes as the fund converted to an ETF, following years of trading at a discount to net asset value, and amid fees of 1.5%. (Discount to NAV reflects the difference between the market price of each share and the value of the bitcoin it represents.)

Fee Disparity

Fees for Grayscale's converted fund and other incumbents, such as ProShares' bitcoin futures ETF (BITO) at 0.95%, are notably higher than those offered by the new spot bitcoin ETFs. The latter, with reduced or zero initial fees, maintains permanent fees ranging between 0.2% and 0.5%.

Inflows Surpass Outflows

Despite the outflows from higher-cost funds, the newly-issued spot bitcoin ETFs have outpaced these losses, attracting a total of $4 billion in inflows. This includes a net inflow of $1.2 billion, excluding Grayscale's converted fund, since the launch.

Minor Outflows Amid Trading Spike

Last week saw minor outflows of $21 million in digital asset investment products, driven by $25 million net outflows from bitcoin-based funds. Investors perceived recent price weakness as an opportunity to add to short-bitcoin investment products, resulting in $13 million inflows.

Altcoin Products and Blockchain Equities

Altcoin investment products, particularly ether and Solana funds, experienced outflows of $14 million and $8.5 million, respectively. On the other hand, blockchain equities performed well, attracting $156 million in inflows and contributing to a nine-week total of $767 million.

Regional Shift in Flows

Regional data from last week indicates a shift of funds towards the U.S., with $263 million in inflows, while Canada and Europe combined experienced outflows totaling $297 million.

Surge in Trading Volume

Trading volume witnessed a sevenfold increase compared to the 2023 weekly average. Bitcoin investment products recorded a total trading volume of $11.8 billion, representing 63% of all bitcoin volume on trusted exchanges. This highlights the dominance of exchange-traded product activity at present.

The rise of spot bitcoin ETFs has significantly impacted the crypto fund landscape, with substantial outflows from higher-cost options. The shift towards lower-fee ETFs reflects a changing investor preference, influencing market dynamics.

This shift in the market landscape, while reflecting investor preferences, poses challenges for higher-cost crypto funds, particularly Grayscale's GBTC. The notable outflows suggest a reevaluation of investor sentiment towards traditional funds, indicating a potential long-term impact on their market position.