Cryptocurrency Dilemma: Decoding the Impact of Bitcoin ETFs on Market Dynamics

Bitcoin ETFs have been on the market for almost 10 days now, and the price of Bitcoin hasn't quite followed the expected trajectory, leading to numerous speculations. The key question is whether the demand for ETFs is substantial enough to influence Bitcoin's price in the future. There's a myriad of rumors circulating, ranging from optimistic scenarios of Bitcoin reaching new highs to pessimistic discussions about a drop to $5,000.

Upon the news of Bitcoin ETFs hitting the market, Bitcoin's price initially surged to around $49K but retraced sharply, almost testing below $40K at one point. Currently, it's trading at $41,755, causing distress for many investors. Now, everyone is wondering what comes next.

What's my opinion? I don't have one. I'll attempt to analyze the situation mathematically. I'll share the results derived from Bloomberg data in a way that everyone can comprehend. Based on these data, we'll explore whether Spot BTC ETFs are beneficial or detrimental to Bitcoin, and what their long-term impact might be.

To understand what might happen next, let's look at what has happened so far. Analyzing Bloomberg data, we find that on the first day, Fidelity made purchases of $227 million, followed by $195 million on the second day, and $102 million on the third day. BlackRock, on the other hand, transacted $117 million on the first day, $386 million afterward, totaling $1.428 billion in Bitcoin transactions to date. Fidelity has transactions totaling $1.282 billion. These are the major players, with Arc at $382 million and Bitwise at $450 million. These are the significant players, and I'm not including the others for now because they are relatively small.

In addition, looking at Bloomberg data, the total Bitcoin purchases so far, excluding GBTC, amount to $3.96 billion. Excluding GBTC due to its outflows, regular sales from there sum up to $2.807 billion. The net new money entering Bitcoin is only $1.148 billion. Is this a significant amount after the hype? Not really. When looked at daily, it roughly translates to around $200 million in net transactions, which isn't significant compared to Bitcoin's daily trading volume. Bitcoin's daily trading volume is around $9.704 billion. These figures might intensify during the week since ETFs are only active on weekdays.

Comparatively, when we look at it this way, it's not a significant amount. A $200 million daily trading volume, compared to Bitcoin's daily volume of approximately $10 billion, is roughly 2%. This is in terms of net Bitcoin ETF purchases. However, if we exclude Grayscale sales, this figure roughly quadruples to $800 million. In this case, it represents around 8% of the total Bitcoin volume. It's not bad, but Grayscale continues to sell, so caution is warranted.

It's also worthwhile to look at the numbers in terms of quantity. Looking at daily net Bitcoin purchases, ETFs had a net purchase of 15,000 on the first day, 5,047 on the second day, a net outflow on the third day (-10,283) due to GBTC sales surpassing the total purchase volume of all other ETFs. On the fourth day, there was a net purchase of 11,253, and on the fifth day, a net outflow of -3,242. On the sixth day, there was only a net purchase of 798. Averaging this out, we get a net daily purchase of 4,600. But if GBTC had not sold 11,257 on that day, the daily average purchase would have been 1,586. This is a significant figure because, when looking at Bitcoin's daily trading volume, which is 232,000, a new daily average purchase of 15,000 would undoubtedly have a positive impact on the Bitcoin price.

Now, we have two questions: Will Grayscale continue to sell, and will Bitcoin ETFs continue to buy at this level?

If Grayscale stops selling and no other major sellers enter the market, even if Bitcoin ETFs continue to buy at current levels, the price of Bitcoin could significantly rise. Why? Because only 900 Bitcoin are produced daily. The entry of just over 15,000 new daily demands into the market will undoubtedly lift the Bitcoin price. Secondly, Bitcoin production is quite advanced; 19 million out of 21 million Bitcoins have already been mined. Therefore, the impact of BTC Halving is no longer as radical. It decreases from 900 to 450, but if there's demand from ETFs of around 15,000, Grayscale isn't selling, and others aren't making significant sales, this will create upward pressure on the Bitcoin price.

If Grayscale continues its sales, there might be downward pressure on Bitcoin's price. Grayscale's substantial Bitcoin reserves seem to have only seen a small portion sold. Even with the Bitcoin potentially acquired by ETFs from Grayscale sales, Grayscale still appears to have 566,973 Bitcoins. This is a significant number. Among other whales holding substantial amounts of BTC, MicroStrategy (189K), the United States government (215K), China (190K), and Ukraine (46,351) are notable.

Tesla currently holds 9,720. If there is a substantial Bitcoin outflow, this could put downward pressure on the Bitcoin price. Grayscale's sales should be closely monitored in this context, as large-scale exits could indicate potential pressure on the price. Another factor is individual investors who have been invested in Bitcoin for an extended period. These individuals might sell their freed-up Bitcoins and move to other assets. Therefore, before understanding whether Grayscale will continue its sales, we need to see how much Bitcoin these investors have sold. In the coming days, closely monitoring net Bitcoin ETF trading volumes will be crucial.

If we see that weekly net purchases increase from around $1 billion to figures like $4-5 billion or $6 billion, the likelihood of Bitcoin's price moving upward will increase. However, it's essential to remember that ETFs are just a part of the whole picture. Additionally, other whales like BlackRock, Fidelity, Tesla, and Maraton Digital play significant roles. You might ask, "What if they sell too?"

Well, in truth, given all these unknowns, a fundamental question arises. "Will Bitcoin's use case develop, and will more people believe in Bitcoin?"

The days ahead will determine this, but it seems that Spot ETFs currently don't have the power to significantly boost Bitcoin's price. In summary, given all the uncertainties, the situation appears less optimistic, at least in the short to medium term. If Bitcoin ETFs become more active, ramp up their marketing efforts, the price could certainly move upward.

I particularly suggest keeping an eye on what the two major players, BlackRock and Fidelity, are doing.

I hope I've conveyed my thoughts without drowning you in numbers and being overly tedious.

Stay well, and goodbye with love.