In a recently published article report Per CoinShares, analyst James Butterfill looks at the relationship between inflows into Bitcoin exchange-traded funds (ETFs) and changes in the price of Bitcoin.
The report addresses the crucial question of how much inflow into ETFs could be anticipated when launching a Bitcoin Spot ETF in the United States and the potential impact of these flows on the price of Bitcoin.
Bitcoin ETFs could attract $14.4 billion
Butterfill highlights Galaxy’s analysis, which estimates that the United States has approximately $14.4 trillion in addressable assets. Assuming a conservative scenario in which 10% of these assets invest in a spot Bitcoin ETF with an average allocation of 1%, this could generate approximately $14.4 billion in inflows in the first year.
According to the report, this would be the largest saved entriessurpassing 2021’s inflows of $7.24 billion, which represented 11.5% of assets under management (AuM).
It is worth noting, however, that in 2020, inflows reached $5.5 billion, representing a 21.6% increase in assets under management, while the price of Bitcoin surged 303% from 60%. in 2021.
The report suggests a correlation between capital inflows as a percentage of assets under management and price changes. The entries coincide with rising price, indicating that many ETF investors are engaging in momentum trading. Conversely, during periods of price stagnation, inflows tended to moderate.
However, it is important to note that investors in exchange-traded products (ETPs) do not necessarily drive price action, as evidenced by volume data indicating that ETP volumes average 3.5% of the daily turnover of Bitcoin transactions on trusted exchanges since 2018.
Bitcoin Price Rise Expected
By analyzing weekly FTE flows and their AuM percentage, the report identifies a trend with a coefficient of determination (R2) of 0.31, suggesting a discernible relationship between flow and price evolution.
Using this trendline, the report estimates that the aforementioned $14.4 billion in inflows could potentially push the price of Bitcoin up to $141,000 per coin.
However, accurately predict precise level of inputs launching spot ETFs remains a challenge. The report recognizes the difficulty of determining the exact scale of inflows.
He emphasizes that regulatory approval and corporate acceptance are gradual processes due to the perceived complexity of Bitcoin, which may require companies and funds to gain knowledge and confidence before committing to a investment.
The potential wall of demand that could materialize following the introduction of a cash ETF is uncertain. Although these ETFs offer portfolio diversification and enhanced Sharpe ratios, regulatory approval and corporate adoption may take time due to the perceived complexities associated with Bitcoin.
Ultimately, CoinShares believes that companies and funds may need an extended period to become familiar with the asset class and gain confidence before entering the market.
Overall, the CoinShares report highlights the potential impact of Bitcoin ETFs on the price of BTC. While it is difficult to accurately determine the level of inflows and their subsequent effects on the market, the report suggests that the launch of a Bitcoin spot ETF in the United States could potentially drive the price of Bitcoin to 141 000 US$ per piece.
Currently, Bitcoin (BTC) is consolidating above the psychologically important $36,000 level. Over the past 24 hours, it saw a minimal decrease of 0.2%, while showing an increase of 1.3% over a 1-hour period.
Featured image from Shutterstock, chart from TradingView.com