Institutional adoption of the Bitcoin ETF is faster than any ETF in history.
Written by Matt Hougan, Chief Investment Officer at Bitwise
Compiled by Luffy, Foresight News
The most critical question in the current cryptocurrency field is: Will institutional and professional investors allocate cryptocurrencies on a large scale? This question is more important than the results of the presidential election, the prospects of crypto legislation in Congress, and the development of blockchain technology.
Why? The data speaks for itself. Most of the world's investment assets are currently held by professionals. Studies show that institutions control about 80% of the U.S. securities market. In contrast, institutions hold very little cryptocurrency. The most aggressive estimate I've seen is that institutions may own 10% of the total supply of Bitcoin.
Imagine if institutions were to hold 50% of the market share, they would need to buy about $500 billion worth of Bitcoin. Needless to say, this would have a huge impact on the price of Bitcoin.
The question then is, will they buy it?
After the Bitcoin ETF was listed, the U.S. Securities and Exchange Commission (SEC) required institutions to disclose their ETF holdings on a quarterly basis using Form 13F. Based on the data disclosed by the institutions, we can now answer this question. The latest batch of 13F filings covering the second quarter of 2024 was released last week and revealed some interesting information. Here are the three key points I summarized:
Finding 1: Institutions continue to buy Bitcoin ETFs
Here’s the most important finding: institutions continued to buy Bitcoin ETFs in the second quarter.
With the price of Bitcoin down 12% in the second quarter of 2024, many are wondering if institutional investors will be scared off. The answer is 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) in Bitcoin ETFs also increased from 18.74% to 21.15% (79% held by retail investors). Overall, institutional investors held a total of $11 billion in Bitcoin ETFs at the end of the quarter.
Specific fund flows were healthy. In the second quarter, 112 investors who held Bitcoin ETFs in the first quarter chose to sell, while 247 new companies made their first investment. In the end, Bitcoin ETFs added 135 new companies.
This is a very good sign in my opinion. If institutions are still buying Bitcoin when the price fluctuates, then it is hard to imagine what will happen in the bull market.
Finding 2: Bitcoin ETFs are seeing rapid institutional adoption
Critics often say that Bitcoin ETFs are primarily held by retail investors, who hold about 79% of Bitcoin ETF assets under management, indicating weak institutional demand.
This is simply wrong. The pace of institutional adoption of Bitcoin ETFs is the fastest in ETF history.
Based on a list from Eric Balchunas of Bloomberg, I looked at institutional holdings 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 and compared them to current Bitcoin ETF holdings.
Institutional adoption of the fastest-growing non-bitcoin ETFs two quarters after listing; data from WhaleWisdom and Eric Balchunas; data as of June 30, 2024.
The institutional adoption rates of these 10 ETFs are far behind the Bitcoin ETF. The closest is Invesco’s QQQ, which launched in March 1999, but I can’t find any historical 13F data for that fund until Q1 2001. In other words, the numbers in the QQQ chart represent institutional adoption nine quarters after the fund went public. Even so, the Bitcoin ETF has 3 times as many buyers as the QQQ.
Some might argue that it’s unfair to compare Bitcoin ETFs overall to individual ETFs. But even if you only look at individual Bitcoin ETFs, they dominate the charts. For example, Bitwise’s Bitcoin ETF (ranked fourth among Bitcoin ETFs by AUM at the end of the second quarter) currently has more institutional holders (139) 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 another fact: Bitcoin ETFs are also more popular with institutional investors than any other ETF in history.
Finding 3: Most institutions are still in the trial phase
Another fact worth noting: the documents show that the median investor holding Bitcoin ETFs in the second quarter only allocated 0.47% of their portfolio to Bitcoin.
This is an encouraging number. After 6 years of managing cryptocurrency risk for professional investors, we have noticed a trend that institutions tend to build their positions over time. Many institutions start with 1% or less of their portfolio, but over time this number rises to 2.5% or even 5%.
I expect institutional investors’ Bitcoin ETF portfolios to exceed 1% within a year and then continue to rise.
Conclusion: Institutional Bitcoin ETF holdings will grow year by year
All in all, I find the 13F filings for Q2 2024 encouraging. Despite the decline in Bitcoin prices, institutions continued to buy Bitcoin ETFs in Q2. 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 seen ETFs launch for two decades. In my experience, most ETF holdings are built over time: the first year might be a test of the waters, but momentum tends to build over years two, three, four, and five. The same thing will happen with Bitcoin ETFs. After all, major institutions are only now opening up access to Bitcoin ETFs (Morgan Stanley approved them earlier this month). I expect Bitcoin ETF inflows to be larger in 2025 than in 2024, and larger in 2026 than in 2025. Institutions are emerging, and getting bigger.
