What's Driving the Spot ETF Inflows?

This spot. Bitcoin ETF update is presented by Grayscale, the world's largest crypto asset manager. Bitcoin passed $50,000 this week off the back of strong spot, Bitcoin ETF inflows joining us now to weigh in on the spot. ETF excitement is K 33 research senior analyst Vetle Lue. Thank you for being on. It's such an exciting time in the market right now. It really, really is talk to me about what you're watching when it comes to ETF S. Yeah. So I'm, I'm paying close attention to the ETF uh flows which have just been immense and gargantuan I would say in the past week, um 53,000 Bitcoins have been gobbled up by the spot ETF S and ETPS globally. Uh In the past week, it's been a certain rapid regime change in terms of flow flows, which is obviously very helpful for the Bitcoin price and it's just been just fuming with uh flows over the past few days. So it's, it's indeed very exciting times. What are some of the factors that are driving these inflows? Yeah, so it's um it's difficult to pinpoint exactly what's the cause behind these flows because there aren't any like rational catalyst behind it. It was quiet for, for a couple of weeks by the end of January and also early February. But if you want to have a rational perspective on it, uh you could look at uh the like building up of uh uh event based sellers before the ETF approval in January 10 evident by CMES growing open interest back then. And also all the event uh or tactical G BT C arbitrage trades occurring in the window before the ETF approval. All of these participants sold quite heavily uh in uh early to mid January leading prices to fall and also outflows to be quite negative. That regime was not uh surprising. Many had anticipated that this would happen in the weeks following the ETF flows, ETF launch. So uh it could be that participants on the defense waited for this, these conditions and this selling pressure to sort of settle a bit more and normalize. Now G BT C flows have indeed fallen quite dramatically over the past few weeks. So it could be just a factor of market participants waiting for Bitcoin to stabilize and G BT C outflows to stabilize before entering. And uh I think that's the key reason why we have seen this growth over the past week and then also momentum builds upon momentum. So once some flows start kicking in and prices start to kick higher, other participants wants to enter as well, leading flows to remain uh exorbitant. Some folks I've spoken to over the past few weeks have said we're still waiting for advisor platforms to list these products and once that happens, we're going to see even more inflows. What's your perspective there? Yeah, I think that's uh nailed on. Correct. Uh It's, it's going to happen in waves this. So the current cycle of massive inflows might settle a bit. Now, in the next coming weeks, uh we are seeing quite early signals of uh flows uh uh trending lower uh compared to the day before it's early to infer what that would mean for the coming week or coming weeks or so. But what we do know clearly is that multiple brokerage platforms do not offer uh Bitcoin ETF S at the moment, reas are not ready at the moment. Due diligence processes needs to be run. You need to assess the liquidity profile of these ETF S and also have the operational flows ready. And this could take months and once this happens, I'm sure we will find ourselves in another wave of uh very positive flows for the speed 20 FS. Now, K 33 research says that there's been an explosion of trading activity on derivatives exchanges like CME group uh unpack this for me. Yeah. So um immediately after the ETF launch, uh we saw that CMU was reducing exposure quite dramatically, but this has completely flipped over the past few weeks. Now, CME participants are entering the market again, open interest is very near to all time highs. And it's been a very dramatic growth over the past few weeks. Alongside uh this growth, we have seen uh a relatively large uh uh growth in the future spaces, the annual annualized future space, it's pushed towards 20% indicative of CM neutron uh traders like the the traders that we look upon us, the institutional more informed side of the market entering crypto again, entering Bitcoin again and entering long positions. So that's been very productive for the market. We are also uh seeing quite substantial growth in activity offshore but uh in the offshore derivatives market, the sentiment seems a bit more balanced. You still have funding rates trailing in neutral terrain on Binance, indicative of uh quite an even demand to add long and short exposure on the Binance perps, which is quite a healthy signal for a market actually, because once those funding rates starts to pick up higher, that's when you want to be cautious and avoid adding leverage to yourself. Now, talk to me about the sustainability. Do you expect this these trends to continue uh throughout the rest of 2024? And what events are you looking forward to? I think the ETF flows will generally remain uh constructive throughout the entire year. You will probably not see uh periods such as this one lasting for more than 1 to 2 to 3 weeks. Uh It's been quite incredible. Um So I expect flows to start moderating a bit from here. Uh But ETF flows and like the enhanced access to Bitcoin uh through these wrappers will be a very important force in the market. Similarly. Uh I also view the Bitcoin halving as an important event. Uh it's uh known beforehand. So you can make the argument argument based on an efficient market hypothesis that the halving does not, should not have an impact on the BT C price. But on the o on the other end of uh the halving, you have the miners who constantly have to sell Bitcoin each and every day to fund their operations. So I would say that uh halving as it incrementally reduces the uh annualized Bitcoin issue by 164,000. Bitcoin is due to have a solid and positive footprint on the Bitcoin price. And on top of that, uh macro conditions are starting to look a bit more favorable. We expect uh interest rates to decline. And also, um we are in a very polarized period in 2024 with a lot of political elections. Uh setting the stage for turbulence, uh and uh uh potential um disagreements between various fractions within countries which could be very beneficial for Bitcoin as Bitcoin represent this neutral uh asset that doesn't, uh isn't uh related to any trust in any state or c central gov governor. So all in all, I think there are a plethora of uh positive factors for Bitcoin ahead. Uh But uh it, it will be very wise to pay close attention in the short term to any developments within leverage because uh right now the rally is starting to get wings and uh you should be considering being cautious soon if this stuff uh uh accelerate for, you mentioned some uh positive factors for Bitcoin there. Give me a price prediction. Where do you see the price of Bitcoin going uh for the rest of 2024? So I'll be, I'll be refraining from using any dollar uh uh predictions. But I'm feeling quite confident that uh Bitcoin is due to uh surpass its all time high. We were quite adamant in our year in review and 2024 outlook that we expected an all time high to be reached earlier than in the past cycles. So very typically would see it in November based on former price patterns. I think we will see it earlier this uh this year and this cycle maybe even ahead of the hallowing. So all time high at least would be my protection uh prediction and also uh generally a very positive year for Bitcoin. Oh Come on. No price prediction. You're not the only one on this show who has refused to give me a number, but I appreciate you still humoring me and saying that you think that we will reach all time highs um a little bit earlier than we have in the past, we're going to have to wrap it there. Vetle, thank you so much for joining first mover. Thank you for having me. That was K 33 research senior analyst, Vetle Lunde.