Bitcoin liquidity is undergoing a significant shift towards the United States due to the emergence of Spot Exchange-Traded Funds (ETFs) in the crypto market. This change is transforming the dynamics of global crypto markets, with several factors contributing to this trend.
Contrary to initial concerns, the introduction of US spot Bitcoin ETFs has actually enhanced liquidity in the cryptocurrency market. This boost in liquidity is facilitating smoother trading and investment processes, thereby increasing market participation.
BTC has become easier to trade on US crypto exchanges compared to platforms abroad, thanks to the influence of the country’s new exchange-traded funds on the leading digital asset.
According to data from research firm Kaiko, US trading venues have accounted for nearly half of the bids and offers within a 2% range of Bitcoin’s mid-price this year, coinciding with the launch of US spot ETFs.
Based on this data, non-US platforms will represent the majority of Bitcoin market depth by 2023. A higher number of bids and asks within a 2% range of the mid-price indicates stronger liquidity, enabling orders to be executed without disrupting prices.
On January 11, nine US Bitcoin ETFs debuted, and the Grayscale Bitcoin Trust, which has been in existence for almost a decade, was converted into an ETF on the same day. This group, which includes offerings from BlackRock Inc. and Fidelity Investments, has attracted a net inflow of $5 billion from investors so far. The anticipation and release of these products have fueled a doubling in Bitcoin’s price over the past year.
Some analysts view the spot Bitcoin ETFs as a tipping point, predicting that they will increase crypto adoption. Optimists anticipate that trading volumes of digital assets will recover from the lows caused by the collapse of the FTX exchange and its sister hedge fund Alameda Research during the bear market of 2022.
The impact of ETFs is already evident. According to Dessislava Aubert, Senior Analyst at Kaiko, 57% of Bitcoin trading against the US dollar now occurs during US market hours, up from 48% the previous year.
In the derivatives sector, open interest in Chicago-based CME Group’s Bitcoin futures market is returning to the record level set when the ETFs were approved. The increase in outstanding contracts indicates greater interest in crypto-related exposure and hedging among US institutions.
The new ETFs calculate their net asset value against specialized benchmarks at the US closing every workday, which aids in Bitcoin price discovery.
Crypto continues to maintain its reputation for volatility. While the eleven bitcoin ETFs that debuted in mid-January have attracted historic inflows from a wide range of retail and institutional investors, there is a large untapped market in the form of wealth managers who have traditionally steered clear of crypto.
Increased institutional investment, acceptance by financial advisors, and trading by major brokerages that do not permit spot bitcoin trading will all contribute to another round of inflows.
While financial advisors prefer ETFs due to their low cost, accessibility, and liquidity, many are hesitant to embrace cryptocurrencies because of their volatility. Major asset managers, including Vanguard Group, explicitly prohibit trading of these funds on their systems, posing another potential obstacle to expanding the customer base of ETFs.
During an interview at the ETF Exchange Conference in Miami Beach, Florida, last week, Kathy Kriskey, Invesco Ltd.’s commodity strategist, and Kurz from Galaxy highlighted the significance of education in gaining the trust of financial advisors and their clients who are interested in using ETFs.
They discussed with etf.com the barriers to wider acceptance of the Invesco Galaxy Bitcoin ETF (BTCO), which currently has $315.4 million in assets and is positioned in the middle of the pack among spot Bitcoin ETFs.
Matt Hougan, Chief Investment Officer of Bitwise Asset Management, stated during a conference panel that he expects Vanguard, which firmly stated its refusal to trade spot bitcoin ETFs on its platform, to change its stance.
