Key Points
- US spot Bitcoin ETFs might pose a risk to on-chain adoption and liquidity.
- Bitcoin ETFs have failed to attract baby boomers with the majority of BTC held by retail investors.
Despite the potential to attract more baby boomers, US spot Bitcoin exchange-traded funds (ETFs) could pose a significant risk to on-chain adoption and liquidity.
There is a growing concern that ETFs could negatively impact on-chain liquidity. According to Jim Bianco, the founder of macro research firm Bianco Research, moving money off-chain into the traditional finance world could hinder the development of a new decentralized financial system.
Bitcoin’s Crucial Week
This warning comes at a critical time for Bitcoin’s price, which is currently trading below a key resistance line. If Bitcoin can break above the $67,500 mark, it could potentially reach new all-time highs, according to Markus Thielen, the head of research at 10x Research.
However, instead of promoting more adoption, ETFs appear to be moving on-chain liquidity into the traditional finance world. This concern has been a long-standing one for the macro researcher. This shift is demonstrated by Coinbase’s Q1 financial results, which showed a revenue of $1.64 billion despite retail trading volume being only half of 2021 levels.
Institutional Growth and Retail Trading Decline
Meanwhile, institutional trading volume rose to $256 billion in the first quarter from $215 billion in Q1 2021. According to Bianco, this indicates that Coinbase is balancing institutional growth to compensate for the decline in retail trading.
This situation may pose a challenging question for Bitcoin’s role as a decentralized alternative to the traditional fiscal system. If the goal is to establish a new financial system, an ETF that pulls money back into the traditional finance world is not helping to reach that goal.
Moreover, ETFs have not been successful in attracting baby boomers. Over 85% of the underlying BTC is held by retail investors, with only 10% held by hedge funds.
Despite assurances that baby boomers are interested in Bitcoin, this does not appear to be the case for the majority of Spot BTC ETF holdings.
Inflows from the US Bitcoin ETFs turned positive in the week of May 6, following three weeks of net negative outflows. The US Bitcoin ETFs gathered over $200 million worth of cumulative net inflows during the past week.
The average purchasing price of the spot Bitcoin ETFs stood between $58,000 to $59,000. There was a significant sell-off when Bitcoin dropped below the $60,000 mark at the beginning of May, suggesting that retail investors are behind most of these moves.
Institutional inflows from ETFs played a significant role in the recent Bitcoin rally to new all-time highs. By Feb. 15, Bitcoin ETFs accounted for about 75% of new investment in the world’s largest cryptocurrency as it surpassed the $50,000 mark.
