Feb 21, 2024

CoinShares head of research James Butterfill joins "First Mover" to share his perspective on the performance of spot bitcoin ETFs in the first months of 2024.

Video transcript

This spot, Bitcoin ETF update is presented by Grayscale, the world's largest crypto asset manager spot Bitcoin ETF S have stolen the spotlight in 2024 coins shares. Head of research James Butterfield joins us now to share his perspective on the ETF narrative moving forward, James. Welcome to the show. Hi, great to be on the show. Great to have you here. Now, what do you make of the ETF performance so far? Really impressive? I mean, I think it initially started off being a little bit disappointing in with regards to the price movement, but it quickly became clear that a lot of buying for the seed capital for the newly issued funds like ishares and fidelity happened prior to the actual launch day while Grayscale was selling quite a lot. And so in essence, we saw that negative price pressure, but what we're seeing since then is the gray scale outflows sort of slow right down and the inflows are sort of picking up a little bit now um for the US newly issued ETF S. And so we, we're at a situation now where we're at $4 billion of net inflows since launch, which is way better than say, ishares gold products, which in 2003 had 100 and 25 million. Is this what we expected to see or have there been some surprises in the past month or so? I think it generally was expected. It was quite difficult to, I think, really put a proper number on how big the inflows really would be. Um uh I, I think on reflection, perhaps it's starting to be a little bit better than expected, given just how popular and how strong the inflows have been. Let's talk about the future. Now, you know, from your perspective, how much do you expect to see flow into the ETF S throughout the rest of the year? That again, I think it's really difficult to quantify this number. Um You could annualize the current numbers and it would break all records um including for any ETF launch if that happens. So I think it's perhaps a bit dangerous to annualize at this point. You know, it's quite rational to say sort of, well, if you look in 2021 we saw $10 billion worth of inflow. So it's quite rational to say we, we, we could hit that sort of point and that would have quite a pros positive effect on price. II, I suspect it would, we would definitely beat the all time highs of uh 69,000. What do you think some of the driving factors are here what, why do you think we're seeing so many inflows? Yeah, I mean, it's, it's, it's not so, the ETF S do have an effect on price for now, but that will calm down and I think what we start settling back on to is market fundamentals and the fundamentals are quite constructive. So a big one is Fed policy. Um, it looks like they will cut rates this year and perhaps a little bit too late to cut rates. And so they might more aggressively cut rates than expected. I definitely think that's going to drive prices. We've got the halving which at least historically seen price rises around. I'm a little bit skeptical because, um, uh after the halving in 2020 a lot of the price rises perhaps were due to COVID stimulus checks. But um, I think loose monetary policy, the Fed's in a difficult situation. If they decided to hike rates, it would cause real problems in the banking sector which are already happening. And again, if you look at New York Bank Corp, for instance, the bank there is, is in real trouble. So there's plenty of supportive uh factors for Bitcoin prices. That's interesting. You say you're a little bit skeptical if we look at 2020 data unpack that a little bit more for us. What do you expect to see happen to the price of Bitcoin after the having and it flows into the ETF after the having? Yeah, I think the Bitcoin price will continue to rise. We, we almost definitely will likely uh test all time highs and many might attribute it to the halving. I'd say it's perfectly known information and therefore shouldn't or have a, an impact impact on price. But yeah, I testing all time highs is a good one. It's gonna be a volatile ride upwards though. But yeah, let's say if we had a 10% of inflows of assets, time management, that's about $14 billion of inflows, that would be a record that could push Bitcoin prices over 100,000, coming back to the ETF. Now, are there any asset managers that you expect to stand out from the bunch? So if we look, let's say a year into the future, what asset managers do you think are going to have uh the most funds under management in these uh spot ETF products? Uh which asset managers? Oh, it's difficult. Certainly, if you look at an asset manager who has an incredibly strong distribution team, a deep set of client relationships, they're the kind of asset managers that are going to do really well in this environment. And it, it's testament now, you just have to look at Blackrock ishares and they're doing incredibly well. And I think it was indicative of their strong client relationships and the massive sales department and those smaller products which perhaps don't have that same ability, the same marketing ability I think will, will struggle with that said, I mean, uh, all of them are doing pretty well and are well past the kind of um marginal costs of, of running the ETF themselves. I mean, if we look at gold, they all could continue to do pretty well. Right. They could all be winners in their own. Right. A year from now. There doesn't have to be a stand out. Yeah, there does seem to be that narrative at the moment of uh Bitcoin cannibalizing gold. It does. Well, I just tweeted this morning exactly that point. Um Not all of the outflows from gold are going into Bitcoin. Um There's a lot more outflows in gold that is than inflows into Bitcoin. So it could be uh very supportive. Um You know, just if you, if I was, you know, some people might think saying 100,000 Bitcoin is a bit crazy, but if you were to sort of readjust that narrative and say, well, you know, gold could take 17% or Bitcoin could take 17% of gold's market share. That is a uh a price of 100,000 for Bitcoin in that respect, in that context, it sounds quite reasonable. Blackrock and Fidelity are two of the uh standout asset managers in the Spot Bitcoin ETF game right now. They also both have Spot E ETF applications. Do you think there's a potential that we'll see an approval on that spot E ETF this year, our head of compliance. So, and, um, product is skeptical it will be. May, I think there's a lot of hopes pinned on May. Um, I don't think we're quite in the depths of the details of some of the people. Certainly some of the Bloomberg analysts are coming up with May, I think it's May the 23rd. It's, it's, it's quite possible. Um, the fed could delay it a bit longer. Um, that might lead to disappointments. Don't forget last September when very people were very hyped about the Bitcoin ETF launch and it didn't happen. Um The SEC has a bit of a track record of disappointing. Um but I think it, it, that there are, I can't see any roadblocks to it not happening eventually at some point this year, perhaps Q three. And what about other assets like XRP or soul? There's some chatter that, you know, once we get an E ETF, we could see other assets um become ETF S. Do you think that's possible? Uh II I think it's harder there, partly because of well launching an ETF, you need a deeply liquid market and as soon as you step outside of the realms of Bitcoin and Ethereum, suddenly the liquidity is a lot, lot lower. So it's a lot harder to scale a product like that. Um And, and also I think the SEC from a regulatory standpoint have been talking about everything other than Bitcoin and Ethereum. Those two have mysteriously been, they've been quite quiet on in terms of ST Y in terms of um uh staking and it being security, there's still those question marks over the Howie tests for many of the old coins other than Ethereum. Um And so for that reason, I think it might take a little while longer before we see ecfs in those products, James. We got a wrap there, but thanks so much for joining the show today and providing that insight on what might happen with ETF as we move into 2024. My pleasure. Thank you.

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