US-listed spot bitcoin exchange traded funds, including the WisdomTree Bitcoin Fund (BTCW ), are just about three months old, but it’s already clear these ETFs are affecting bitcoin supply.
That dynamic arrives ahead of bitcoin’s quadrennial halving – itself a supply-capping event scheduled to take place later this month. Importantly, bitcoin supply, regardless of ETFs, is fixed. Once 21 million coins are mined, no more will come to market. Given that, and the effects ETFs such as BTCW are having, it’s clear bitcoin supply, or lack thereof, could be a major factor in pricing of the cyrptocurrency for some time to come.
After all, spot ETFs such as BTCW are functioning as new buyers of the digital currency. By some estimates, BTCW and friends frequently buy more bitcoin in a day than is mined. That’s just one example of the increasingly interesting supply/demand dynamics affecting the largest cryptocurrency.
ETFs, Halving Pertinent to Bitcoin Supply
Bitcoin has had a stellar run through the first quarter. Some make the case, then, that prices have factored in the upcoming halving. Still, the event is potentially noteworthy for bitcoin investors and those holdings ETFs such as BTCW.
“On the one hand, we can think about bitcoin on a supply/demand basis. If demand is outpacing supply, there should be upward pressure on the price. The halving indicates that there is less new bitcoin supply coming into the world, so if demand merely remains the same, the supply/demand balance immediately shifts more toward demand outpacing supply,” noted WisdomTree Global Head of Research Christopher Gannatti.
Regarding the effects of ETFs such as BTCW on bitcoin supply, buying by those funds has outstripped new supply of bitcoin. More of the same could be on the way. As Gannatti noted, some professional market participants still don’t have access to spot bitcoin ETFs on their custodial platforms. Observers expect that to change, as more of these funds add assets and see liquidity increase.
“One hypothesis advanced before the ETFs launched regarded an increase in investor types—those that were precluded from setting up their own crypto wallets, for example—being able to gain exposure,” added Gannatti. “The daily net flow of BTCs into ETFs is absolutely skewed to the positive end of the spectrum, and we note that there were still many investors working at firms where central home offices have not yet issued blanket approvals to use these products across the board.”
Specific to BTCW, the fund has a six-month fee waiver in place. Its current expense ratio is 0%, and its sponsor’s fee is waived up to $1 billion in assets under management.
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