Digital Asset ETFs - A Game of Flows
Executive Summary
- Market trading color: BTC price action, large holders accumulating, and volatility selling off
- Theme of the week – ETH ETF launch impact alongside expectations and comparative inflows of GBTC
- Sector commentary: Bitcoin faces U.S. government-related selling pressure, high dominance, potential price liquidations, and mixed post-halving performance
Market Trading Color (Nolan Aibel)
It is evident that it has been a rocky week for digital asset prices. Everything was wonderful after former President Trump spoke on Sunday at Bitcoin Nashville and promised to maintain a strategic national Bitcoin reserve and “never sell” the government’s seized Bitcoin. This propelled $BTC to $70,000 and had it looking like a new all-time high was on the horizon. Aside from the large sell wall seen at $70,000, the US government ironically moved $2B in Silk Road BTC 48 hours post Trump saying he’d never sell US government seized Bitcoin. While it looks as if they haven’t sold any of this newly moved Bitcoin, it caused a stir within the ecosystem. This coupled with geopolitical issues and Trump perhaps losing ground led majors to grind lower over the course of the week. $BTC now sits below $65,000 as over $440M in longs were liquidated on the way down. Despite all of this, $BTC sits 12% below its all-time high and large holders scooped up near records amount of Bitcoin in July. Over 84,000 BTC, $5.45B is said to have been accumulated by addresses owning at least 0.1% of BTC’s circulating supply over the past month.
Source: TradingView
Vols were bid heavily heading into Trump’s speech this past weekend as people thought this speech may have sent us to ATHs. Vols sold off hard once that goal wasn’t realized. BTC implied is 46.28, ETH implied 53.35. Realized vol are sub 50 on both. There was large BTC September call sellers heading into month end. The top ETH structures seen of late have been bear call spreads, reverse put calendars spreads and bull call spreads. August has historically been a quieter month for crypto, interested in seeing if vols continue to suppress or whether this ends up being attractive levels to own upside.
Source: TheTie
Ethereum ETFs: A Rocky Start amid Significant Outflows
The launch of Ethereum ETFs and its sequential inflows and outflows have been tracked and monitored closely over the past week. The initial week has shown a mixed response, with net outflows reaching $440 million. This development is primarily attributed to massive withdrawals from the Grayscale Ethereum Trust (ETHE), which saw over $1.7 billion in outflows, overshadowing the inflows into the newly listed spot Ether ETFs.
ETF Inflows and Outflows
The overall picture was dominated by ETHE, which faced significant redemptions, mirroring the early days of the Grayscale Bitcoin Trust (GBTC) when Bitcoin ETFs were introduced. In contrast, other Ether ETFs from firms like BlackRock, Bitwise, and Fidelity attracted around $1.15 billion in inflows, showing a healthy interest despite the competitive landscape. The total net assets under these ETFs stood at $9.24 billion, representing approximately 2.31% of the total Ethereum market cap as of July 29.
Source: Farside Investors
The chart above shows the net outflows and inflows of various Ether ETFs in the first week. Notably, while new ETFs attracted considerable investments, the overall market sentiment was dampened by the large-scale selloffs from ETHE.
ETF Trading Volumes
The trading volumes of the newly launched Ethereum ETFs provide further insights into market behavior. Spot Ethereum ETF trading volumes were dominated by Grayscale’s ETHE, which held around a 52% market share on Friday. This was followed by BlackRock’s ETHA, Grayscale’s ETH, and Fidelity’s FETH, which captured 21.7%, 12%, and 8.4% volume shares, respectively.
Source: theblock.co
The chart above shows the amount of trading that took place on spot Ethereum ETFs in the first few days after they were launched. ETHE's high trading volume indicates that it plays a big role in the market, even though people are investing in different ETFs.
Comparison with Bitcoin ETFs
A comparison with the launch of Bitcoin ETFs reveals that Ether ETFs have had a less favorable start. Bitcoin ETFs managed to pull in $1 billion in net inflows during their initial days despite also facing significant outflows from existing products like GBTC. The early outflows from ETHE could potentially mirror the GBTC experience, where after an initial wave of redemptions, a stabilization period followed, leading to renewed investor confidence and inflows.
Source: Farside Investors
The graph illustrates GBTC's asset loss trajectory compared to ETHE since their conversions. ETHE's asset loss has been sharp, like GBTC's initial experience, suggesting a pattern where significant early outflows might precede stabilization.
The Ethereum network is currently generating approximately 2,070 ETH per day. With the current price of ETH around $3,450, this equates to roughly $7.13 million in new ETH supply daily. However, this amount is significantly lower than the daily trading volumes observed in the newly launched ETFs. Moreover, the total supply of ETH on exchanges has reached an all-time low of 16.6 million ETH, suggesting a tightening availability of ETH for trading purposes.
Source: CryptoQuant
The demand from ETF inflows far exceeds the daily creation of new ETH, which could lead to upward pressure on prices. The reduction in available ETH on exchanges further exacerbates this pressure, as a substantial portion of the inflow capital is likely to convert into actual ETH purchases, thereby reducing the already limited supply. The situation mirrors the dynamics seen during Bitcoin's ETF introduction, where substantial inflows led to significant price appreciations.
The approval of the Ethereum ETF has also impacted the ETH ecosystem. Investors and traders have been trading ETH-related assets, hoping to capitalize on the performance boost from the ETF. ETH beta plays include Lido DAO (LDO), MOG Coin (MOG), PEPE, and Rocket Pool (RPL).
Layer 2 Token Performance Year-to-Date Despite ETH's price rise, L2 tokens have struggled:
- Ethereum (ETH): Up 41.39%
- Gnosis (GNO): Up 4.40%
- Manta (MNT): Up 23.44%
- Metis (METIS), Optimism (OP), Arbitrum (ARB): Underperformed compared to ETH, with the following changes:
- Metis (METIS): Down 64.37%
- Optimism (OP): Down 57.87%
- Arbitrum (ARB): Down 59.96%
- STRK, Canto: Down significantly:
- STRK: Down 74.40%
- Canto (CANTO): Down 79.37%
Source: TradingView
Key Insights from the Bitcoin Conference
In addition to the latest developments in the Ether ETF market, we also covered the recent Bitcoin conference in Nashville in our flashnote titled "Nashville Notes - Key Insights from the Bitcoin Conference." Keynote speakers, including Michael Saylor, RFK Jr., and Donald Trump, offered insights into Bitcoin's potential, regulatory landscape, and strategic innovations. Michael Saylor highlighted Bitcoin's capacity for capital preservation in a global wealth context, while RFK Jr. discussed ambitious plans for integrating Bitcoin into the U.S. financial system. Donald Trump emphasized regulatory reforms to support the crypto space.
Technological advancements discussed included innovations like BitVM and OP CAT, which are pushing the boundaries of Bitcoin smart contracts and transaction efficiency. The event also featured discussions on the transition of BTC miners into AI infrastructure, outlining the potential for future growth and profitability in this emerging sector.
For a more detailed exploration of these topics, readers are encouraged to refer to our full flashnote posted on July 29th, which delves deeper into the conference's key discussions and insights.
Sector Commentary
- Layer One / Altcoins
- Bitcoin ($BTC): BTC Slides as U.S. Government-Linked Selling Pressure Looms (link)
- Bitcoin ($BTC): U.S. Strategic Bitcoin Reserve to Be Funded Partly by Revaluing Fed's Gold, Draft Bill Shows (link)
- Bitcoin ($BTC): The Clock Has Ticked on Bitcoin's Post Halving Surge, 100 Days After the Latest Quadrennial Halving (link)
- Bitcoin ($BTC): Bitcoin dominance hits highest level since April 2021 (link)
- Bitcoin ($BTC): Bitcoin analysis warns BTC price liquidations will start below $64K (link)
- Ethereum ($ETH): Ethereum turns 9 today, Vitalik Buterin says — though others might beg to differ (link)
- Ethereum ($ETH): Ethereum price will lag for ‘months’ as Bitcoin surges: X Hall of Flame, Roman (link)
- Ethereum ($ETH): Why is ETH demand lacking post-Ethereum ETF? (link)
- Ripple ($XRP): XRP déjà vu: Is another 60,000% price surge on the horizon? (link)
- Altcoins: $600M XRP token release to bring August crypto unlocks to $1.5B (link)
- Altcoins: Dogecoin Pup Owner’s New Shiba Inu Ends Up in NEIRO Memecoin Drama (link)
- DeFi
- Web3 / AI / NFTs
- Coindesk Protocol Village: Eclipse Mainnet Opens to Builders, Raiinmaker Launches Solana Mobile DApp (link)
- Blockworks Funding Wrap: Franklin Templeton backs Bitcoin L2 Bitlayer (link)
- DraftKings Dumps NFT Business, Citing Legal Developments (link)
- AI Concerns Ease with Hands-On Experience, Gartner Says (link)
- RWA / Tokenization / Metaverse / Gaming
- Digital Infrastructure: Capital Markets / Exchanges / DAOs / Mining
- SEC Intends to Amend Complaint in Binance Case (link)
- Ripple execs denounce SEC over its plan to amend its complaint against Binance, says it adds to confusion (link)
- Over 41.5% of Mt. Gox Bitcoin distributed as creditors continue to hodl (link)
- Anthony Pompliano: Bitcoin Will Be on U.S. Balance Sheet in 'Next 10, 15 Years' and Investing in Solana for Less Than a Dollar (link)
- Making Bitcoin a Strategic Reserve Asset Contradicts 'Freedom From Government' Narrative, Says WSJ (link)
- Bitcoin's Future Could be Tied to the Outcome of the U.S. Election: Jefferies (link)
- Circle Said to Be Trading Around $5B Valuation Ahead of Planned IPO: Sources (link)
- Crypto for Advisors: Making Sense of Crypto (link)
- No Other Crypto ETFs In The Foreseeable Future: BlackRock (link)
- Wall Street Loves Ethereum ETFs. It’s Just Not Sure How to Sell Them Yet (link)
- Ethereum ETFs Boost Crypto Fund Trading Volume as Bitcoin Retains ‘Healthy’ Interest (link)
- Bitcoin Mining Could Be a $20 Billion Market With US Hardware Push: Bernstein (link)
- Saudi Arabia’s Riyadh may be crypto’s sleeping giant: Crypto City Guide (link)
- Bank of England to Carry Out CBDC, Digital Ledger Experiments (link)
- Russia Legalizes Crypto Mining and Brings an Experimental Regime (link)
