Custom Indicators for In-Depth Analysis: New tools like Cumulative Flow Difference, Flow Volatility, and Flow-Weighted Average Price provide signals on market highs, lows, and investor cost basis. Long-term bullish outlook: ETFs are acquiring more Bitcoin than newly mined, a structural shift that could support future price increases. A New Era of Bitcoin Adoption: Since their launch in January 2024, US-based exchange-traded funds (ETFs) have become a transformative force in the Bitcoin ecosystem. These financial products allow both retail investors and institutional investors to gain exposure to Bitcoin without directly holding it. Given Bitcoin's fixed supply of 21 million, this mechanism significantly influences its supply and demand dynamics. However, it is estimated that approximately 3 million to 6 million Bitcoins are permanently lost due to lost private keys, death of the owner, or other irrecoverable circumstances. This reduces the number of Bitcoins actually in circulation to approximately 15 million to 18 million, the upper limit of the total supply of Bitcoin.
Against this backdrop, the fact that ETFs currently hold over 1.4 million BTC, equivalent to over 7% of the maximum supply, and potentially over 10% of the circulating supply, demonstrates the significance of their growing dominance.
Quarterly and Monthly Dynamics
Let’s first examine the health of ETFs at a high level. The total amount of BTC held by all Bitcoin ETFs globally has surpassed 1.4 million. Even before the end of the quarter, these ETFs have already absorbed over 91,000 BTC. This is a strong quarter, surpassed only by the inflows seen at the end of last year when the first ETFs launched and the post-election rally.
Broken down by month, the inflows are even more striking:
May-August 2025: Continued inflows, steadily removing more Bitcoin from the market.
August alone absorbed 41,000 BTC.
Bitcoins mined daily: ~450, or ~14,000 per month.
Simply put, ETF inflows this month have exceeded three times the new supply entering the system via miners. This absorption has put sustained upward pressure on prices by tightening available liquidity, perhaps explaining why our climb to highs has been passive and gradual so far. Fund Flow Analysis: Cumulative Fund Flows: Cumulative ETF fund flows show a staggering net inflow of $54 billion since January 2024. This overall trend is "continuously upward," with only brief pauses, indicating a continued influx of passive funds. One of the most insightful custom indicators derived from this data is the Cumulative Flow Difference, an oscillator that measures the deviation of ETF flows from their long-term trend. This indicator accounts for these factors by shifting the values forward for non-trading days, such as weekends, and applying a 75-day moving average to smooth the data while avoiding excessive noise. The differential is the difference between daily fund flows and this average, highlighting any acceleration or deceleration in net fund flows. Data from March 2024 onwards shows that when the Cumulative Flow Differential is above +8, it indicates high prices, exceptional fund inflows, and positive market sentiment. A Cumulative Flow Differential near zero or negative indicates a low point, potentially presenting undervalued investment opportunities. This indicator effectively quantifies the behavior of retail investors and encourages contrarian trading. A closer look at daily ETF flows reveals a correlation with Bitcoin's price action. Inflows dominate during rallies, while outflows surge during pullbacks. The correlation is clear: retail investors, who make up the bulk of ETF participants, exhibit rising and falling behavior. They flock in during highs driven by FOMO and flee during lows driven by fear, uncertainty, and doubt. The largest outflow occurred in February 2025, when Bitcoin plummeted 17% from $100,000 to $83,000, triggering a panic sell-off. Conversely, the largest inflow occurred in November 2024, during Bitcoin's rally from $70,000 to $90,000. These patterns are a real-time manifestation of behavioral finance principles, such as herd mentality and loss aversion.
From an educational perspective, this data suggests a contrarian strategy:
It might be that simple.
Flow Volatility
Another layer of analysis I perform is flow volatility, which tracks how volatile daily flows are relative to their historical averages. The red areas in the chart below indicate high volatility, which typically coincide with large price swings. Interestingly, volatility has remained low throughout the recent decline from its all-time high of $10,000. This reflects Bitcoin's maturity: what were once "crashes" are now just regular fluctuations. Three to five years ago, a similar move would have likely halved the price; now, with a market capitalization exceeding $2 trillion, such fluctuations are merely blips. Perhaps the most innovative metric is the Flow-Weighted Average Price (FWAP), an experimental indicator that weights Bitcoin’s price by daily ETF flows. It calculates the price-flow product and the decreasing cumulative sum of flows, emphasizing recent activity to reflect market sentiment among current holders. I’ve come to think of this as the ETF version of the “realized price”—a cornerstone of on-chain analytics that represents the average price of all tokens when they last changed hands. The FWAP also attempts to estimate the average cost basis, but for ETF investors. Currently, the average cost price is $105,000, which is similar to the price realized by short-term holders. This suggests that ETF holders are likely to be profitable even during this correction. Recent history shows that when prices fall below this level, panic selling occurs, marking local bottoms during periods of extreme pessimism. The potential of this indicator extends to derivatives, such as FWAP-based oscillators and risk indicators, so I will further refine these in the coming weeks. But even now, it provides a unique perspective on the cost basis of both institutional and retail investors that I have not found elsewhere. Bullish Signal of Tightening Supply From a broader perspective, it's clear that ETFs are structurally absorbing Bitcoin supply at a rate far exceeding mining output, fundamentally reshaping the supply landscape. This "supply absorption" is bullish in the long term because it reduces the amount of Bitcoin available for spot trading. But that doesn't mean it's "up forever." We can clearly see from fund flows that investors are happy to sell their coins (or shares) when prices fall, so this is something I'll be watching closely. This data also reveals some surprising insights. While exchange-traded funds (ETFs) are quietly accumulating large amounts of Bitcoin, fund flow data offers a compelling window into human psychology. The emerging indicators discussed here represent the cutting edge of fund flow-based Bitcoin analysis and will undoubtedly become key tools in my future accumulation strategies. At the current rate, these ETFs and the indices that track them will only become more important as the market evolves.
Alex
Brian
Kikyo