Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by: 0xjs@ Jinse Finance
The biggest question in the cryptocurrency space right now is whether institutions and professional investors will allocate cryptocurrencies on a large scale.
This issue is more important than the results of the presidential election, the prospects for congressional legislation, and the technological development of the blockchain field.
The reason is simple: math.
Most investable assets are primarily held by professionals. For example, studies show that institutions control about 80% of the U.S. stock market. In contrast, institutions hold relatively little in cryptocurrency. The most aggressive estimates I’ve seen suggest that they may own 10% of all Bitcoin.
In order for this number to reach 50% market share, professional investors would need to buy around $500 billion of Bitcoin. Needless to say, this would have a huge impact on the price.
So...will they buy it?
Thanks to the advent of Bitcoin ETFs and the U.S. SEC’s requirement that institutions disclose their ETF holdings on a quarterly basis using Form 13F, we can now answer this question. The latest batch of 13F filings, covering the second quarter of 2024, became available last week, and what they reveal is interesting.
Here are three key takeaways.
Key Finding 1: Yes, Institutions Continue to Buy Bitcoin ETFs
The first finding is also the most important: institutions continued to buy Bitcoin ETFs in the second quarter.
This is not guaranteed. The price of Bitcoin fell 12% in the second quarter of 2024, and many wondered if this would scare off institutional investors. The answer is a resounding “no.”
The total number of institutional investors holding Bitcoin ETFs increased by 14% quarter-over-quarter, from 965 to 1,100. Their share of total assets under management (AUM) of Bitcoin ETFs also increased from 18.74% to 21.15%. Overall, institutional investors held a total of $11 billion in Bitcoin ETFs at the end of the quarter.
There were some healthy flows among those flows. In the second quarter, 112 investors who held bitcoin ETFs at the end of the first quarter sold the asset, while 247 new firms made their first investments. Overall, bitcoin ETFs added 135 new firms.
This is a very good sign in my opinion. If institutions buy Bitcoin when the price fluctuates, imagine what will happen in a bull run.
Key Finding 2: The pace of institutional adoption is historic
Critics like to point out that Bitcoin ETFs are primarily held by retail investors, who hold about 79% of Bitcoin ETF assets under management. They use this fact to show that institutional demand is weak.
This is simply wrong. Bitcoin ETFs are seeing the fastest institutional adoption in history.
Using a list from Bloomberg’s Eric Balchunas, I looked at institutional ownership of the 10 fastest-growing new ETFs of all time, ranked by AUM one month after listing. Specifically, I looked at the number of institutional holders and total institutional AUM of these ETFs two quarters after listing to compare to the current state of Bitcoin ETF ownership.
Fastest Growing Non-Bitcoin ETFs: Institutional Adoption Two Quarters After Listing
Source: Bitwise Asset Management, data from WhaleWisdom and Eric Balchunas. Data as of June 30, 2024.
(1) Non-Bitcoin ETFs are ranked based on AUM one month after listing.
(2) Note: QQQ launched in March 1999. 13-F data for the fund was not available until the first quarter of 2021, so these numbers reflect ownership nine quarters after listing.
There is simply no comparison. The only comparable ETF is Invesco’s QQQ, but that’s an apples to oranges comparison. QQQ launched in March 1999, but I can’t find any historical 13F data for the fund until Q1 2001. In other words, the numbers in the QQQ chart represent institutional adoption of the fund nine quarters into its growth. Even so, the Bitcoin ETF had 3 times as many buyers!
Some might argue that it’s unfair to compare Bitcoin ETFs overall to individual ETFs. But even if you look at just individual Bitcoin ETFs, they dominate the charts. For example, Bitwise’s Bitcoin ETF (ranked fourth among Bitcoin ETFs by AUM at the end of Q2) has more institutional holders (139) at this stage of its existence than SPDR giant GLD (118).
ETFs are a unique investment product that can be held by both institutional and retail investors. We should not let the historic adoption of Bitcoin ETFs by retail investors obscure the fact that Bitcoin ETFs have also gained traction with institutional investors faster than any other ETF in history.
Key Finding 3: Most institutions are still at the initial stage
Here’s another fact: The filings show that the median investor who reported holding a Bitcoin ETF in the second quarter had just 0.47% of their portfolio invested in Bitcoin.
I find this number very encouraging. After managing cryptocurrency risk for professional investors for over 6 years, one trend we’ve noticed at Bitwise is that they tend to build their positions over time. Many start with 1% of their portfolio or less, but over time that number tends to rise to 2.5% or even 5%.
I expect the average institutional investor holding to exceed 1% within a year and continue to rise from there.
Conclusion: ETFs are a multi-year narrative
All in all, I find the 13F filings for Q2 2024 very encouraging. Institutions continued to buy Bitcoin ETFs in Q2 despite the price drop. Hundreds of new institutional investors made their first purchases. And, Bitcoin ETFs were adopted by institutions faster than any ETF in history.
As the former CEO of ETF.com, I’ve witnessed ETF launches for two decades. One thing I know is that most ETFs are built over time: the first year can be a challenge, but momentum tends to build in years two, three, four, and five. I expect the same thing to happen here. After all, the major platforms are only now opening up access to Bitcoin ETFs (Morgan Stanley approved them earlier this month). I expect 2025 to see greater inflows into Bitcoin ETFs than 2024, and 2026 to be greater than 2025.
Institutions are emerging and growing larger and larger.
