Author: Matt Hougan, Chief Investment Officer of Bitwise
Translation: Luffy, Foresight News
The most crucial issue in the current cryptocurrency field is whether institutions and professional investors will allocate cryptocurrencies on a large scale. This question is more important than the results of the presidential election, the prospects of congressional cryptocurrency legislation, and the development of blockchain technology.
Why is that? Data tells everything. Currently, the majority of investment assets in the world are mainly held by professionals. Research shows that institutions control about 80% of the share of the U.S. securities market. In contrast, institutions hold very little cryptocurrency. The most aggressive estimate I have seen is that institutions may own 10% of the total Bitcoin supply.
Imagine if institutions were to hold 50% of the market share, they would need to purchase about $500 billion worth of Bitcoin. Undoubtedly, this would have a huge impact on the price of Bitcoin.
So the question is, will they buy?
After the listing of the Bitcoin ETF, the U.S. Securities and Exchange Commission (SEC) requires institutions to disclose their ETF holdings quarterly using the 13F form. Based on the data disclosed by institutions, we can now answer this question. The latest batch of 13F filings covering the second quarter of 2024 was released last week, revealing some interesting information. Here are three key points I have summarized:
Discovery 1: Institutions continue to buy Bitcoin ETF
This is the most important finding: institutions continued to buy Bitcoin ETF in the second quarter.
The price of Bitcoin fell by 12% in the second quarter of 2024, and many people wondered if institutional investors would be scared off. The answer is no.
The number of institutional investors holding Bitcoin ETFs increased by 14% from 965 to 1,100. Their share in the total assets under management (AUM) of Bitcoin ETFs also increased from 18.74% to 21.15% (retail investors hold 79%). Overall, institutional investors held a total of $11 billion worth of Bitcoin ETFs at the end of this quarter.
The specific fund flows are 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 investments. In the end, 135 new companies increased their holdings of Bitcoin ETFs.
In my opinion, this is a good sign. If institutions are still buying Bitcoin during price fluctuations, the situation during a bull market is hard to predict.
Discovery 2: Institutions are adopting Bitcoin ETF at an extremely fast pace
Critics often say that Bitcoin ETFs are mainly held by retail investors, who hold about 79% of the assets under management of Bitcoin ETFs, indicating weak institutional demand.
This is completely wrong. The speed at which institutions are adopting Bitcoin ETFs is the fastest in the history of ETFs.
Based on a list from Bloomberg's Eric Balchunas, I researched the institutional holdings of the 10 fastest-growing new ETFs in history, ranked by AUM one month after listing. Specifically, I studied the number of institutional holders and the total AUM of these ETFs two quarters after listing and compared them with the current situation of Bitcoin ETF holdings.
Institutional adoption of the 10 fastest-growing non-Bitcoin ETFs two quarters after listing; data from WhaleWisdom and Eric Balchunas; data as of June 30, 2024.
The speed at which these 10 ETFs are adopted by institutions compared to Bitcoin ETFs is significantly different. The closest is Invesco's QQQ, which was launched in March 1999, but I couldn't find any historical 13F data for the fund until the first quarter of 2001. In other words, the numbers in the QQQ chart represent the institutional adoption of the fund nine quarters after listing. Even so, the number of buyers of Bitcoin ETFs is three times that of QQQ.
Some may argue that comparing the overall Bitcoin ETF with individual ETFs is unfair. But even if you only look at individual Bitcoin ETFs, they would still rank at the top. For example, Bitwise's Bitcoin ETF (ranked fourth in Bitcoin ETFs by AUM at the end of the second quarter) has more institutional holders (139) than the giant GLD of SPDR (118).
ETFs are a unique investment product that can be held by both institutional and retail investors. We should not let the historical adoption of Bitcoin ETFs by retail investors overshadow another fact: Bitcoin ETFs are also more favored by institutional investors than any other ETF in history.
Discovery 3: Most institutions are still in the early stages
There is another fact to note: the filings show that the median investor holding Bitcoin ETFs in the second quarter was only 0.47% of their portfolio allocation.
This is an encouraging number. After managing cryptocurrency risk for professional investors for 6 years, we have noticed a trend where institutions tend to build their positions over time. Many institutions start with 1% or less of their portfolio, but over time, this number will rise to 2.5% or even 5%.
I expect institutional investors' portfolio allocation to Bitcoin ETFs to exceed 1% within a year, and then continue to rise.
Conclusion: Institutional holdings of Bitcoin ETFs will increase year by year
In conclusion, I found the 13F filings for the second quarter of 2024 to be encouraging. Despite the price drop of Bitcoin, institutions continued to buy Bitcoin ETFs in the second quarter. Hundreds of new institutional investors made their first purchases. Moreover, the speed at which Bitcoin ETFs are being adopted by institutions is faster than any other ETF in history.
As the former CEO of ETF.com, I have witnessed the launch of various ETFs for twenty years. Based on my experience, most ETF holdings are built over time: the first year may be a trial, but momentum often strengthens in the second, third, fourth, and fifth years. The same thing will happen with Bitcoin ETFs. After all, major institutions are just beginning to gain access to Bitcoin ETFs (Morgan Stanley approved them earlier this month). I expect the inflow of Bitcoin ETFs in 2025 to be greater than in 2024, and in 2026 to be greater than in 2025. Institutions are constantly emerging, and their scale is growing.
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