Institutional Investors Drive Record Adoption of Bitcoin ETFs

You don’t have to have had your eyes glued to the markets recently to have noticed that Bitcoin ETFs have been dominating the headlines again this week, in every sphere but that of focus on retail investors.

In a recent conversation on X, Bitwise CIO Matt Hougan challenged the prevalent belief that financial instruments are a consequence of retail hysteria. He said institutional interest in their kind is sweeping the markets and setting records.

Bitcoin ETFs have earned nearly $18 billion since the start of the year. This is impressive considering that the Nasdaq-100 QQQs raised $5 billion in their first year. Bitcoin ETFs are on track to exceed one of the finest ETFs ever.

1/ Bitcoin ETFs are being adopted by institutional investors faster than any other ETF in history. Don’t believe the “it’s just retail” story. The data prove otherwise.

A thread.

— Matt Hougan (@Matt_Hougan) August 21, 2024

Retail Vs. Institutional: The Numbers Game

Critics, however, are less than fully convinced by the hype. They argue that Bitcoin ETFs are still largely driven by retail. Up to Q2 2024, institutional investors held only 20% of AUM in BTC ETFs through quarterly disclosures known as 13Fs. The other 80% is held by the retail class, an imbalance that has led some to question just how institutional these funds really are.

Bitcoin is now trading at $64,128. Chart: TradingView

Institutional Adoption: Taking A Step Closer

According to regulatory filings quoted by Reuters, Goldman Sachs and Morgan Stanley made a big splash in the second quarter of 2024 with a sizable investment into spot Bitcoin ETFs. Goldman Sachs picked up some $418 million in Bitcoin ETFs, most notably $238 million in the iShares Bitcoin Trust. At nearly 7 million shares as of June 30, that places Goldman near the top of institutional investors in this space.

Morgan Stanley was close, with a $188 million investment in BlackRock’s iShares Bitcoin ETF. These investments, aside from its stake in the Ark 21Shares Bitcoin ETF and the Grayscale Bitcoin Trust, underline the growing institutional interest in Bitcoin ETFsᅳperhaps overshadowed by the massive retail inflows.

Bitcoin: A Unique Market Position

Such a narrative that Bitcoin ETFs are completely retail-driven would fall way short of the bigger picture. Although there has been retail capital flooding into these products, that should not imply institutions aren’t heavily involved. In fact, it can be argued strong retail interest is tilting the scales of perception, making institutional adoption look less impactful than it actually is.

Hougan’s analysis suggests that in spite of the domination of retail investors, Bitcoin ETFs have rapid institutional adoption. Not only is the trajectory of growth in these ETFs impressive, but it indeed represents wider acceptance of Bitcoin within institutional circlesᅳa fact all the more remarkable given the kind of skepticism traditionally accorded to cryptocurrencies by traditional finance.

Featured image from Pexels, chart from TradingView

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