Bitcoin ETF High Volume Doesn't Always Mean Heavy Buying: NYDIG

While high trading volume in the new spot bitcoin ETFs is commonly thought to indicate strong investor buying interest, it may not necessarily be so, according to a NYDIG report.

"Daily trading volume is not a reliable indicator of daily fund flows, a misconception prevalent in the industry,” Greg Cipolaro, global head of research at NYDIG, wrote in a note on Friday.

For example, noted Cipolaro, it would be safe to assume that the Grayscale’s Bitcoin Trust (GBTC) is the best investment out of the ten bitcoin ETFs because it has consistently had the highest trading volume – in total over $20 billion since the spot ETFs launched on Jan. 11. Yet the fund has lost over $7 billion in assets, the clearest indication that there's little correlation between volume and inflows.

BlackRock’s iShares Bitcoin Trust (IBIT), has only seen a little over half of GBTC’s volume, around $13 billion, but has seen AUM go from $0 to nearly $7 billion.

Cipolaro prefers to look at a fund's turnover ratio, or the dollar trading volume divided by the fund's net asset value. "This ratio shows the proportion of the fund's assets traded on any given day, offering a glimpse into the investor and trader profiles and potentially what motivates their investment choices," he wrote.

The spot bitcoin ETF group as a whole has seen a turnover ratio of 5.3%, said Cipolaro, with Valkyrie (BRRR) and Grayscale's GBTC seeing the lowest rates at 2.2% and 2.4%, respectively. At the high end is Ark 21 (ARKB) at 11.3%. He also took note of an upside outlier, WisdomTree's (BTCW), the smallest of the spot ETFs with just about $30 million in AUM, during one five-day period experienced a turnover ratio of 205%.

Cipolaro noted that differing turnover ratios are not uncommon in other popular ETF families, the numerous funds tracking the S&P 500, for example. He suspects that options markets may help explain the differences and that once options on the spot bitcoin ETFs win approval, the turnover ratios for those vehicles may change from what's currently observed.