Learn about the data behind Bitcoin’s record high and its first ETF issuance

After 189 days from the last historical high, the price of Bitcoin surged to a new height on October 20, breaking the $65,000 mark for the first time. The new highs came after the successful launch of the first Bitcoin-focused exchange-traded fund (ETF) in the United States.

Although there are key differences between the two futures-based ETFs launched last week and the unapproved spot ETFs that hold and custody Bitcoin, these ETFs have rekindled interest in BTC and further made the cryptocurrency legal as a whole change. Although Bitcoin’s approach to its peak seems to have been only not long ago, there are some signs that the market dynamics of the recent rally are significantly different from earlier this year.

BTC spot trading volume dynamics

Unlike the BTC price increase earlier this year, the recent historical highs have not yet resulted in a new record of daily spot trading volume.

Learn about the data behind Bitcoin's record high and its first ETF issuance

Source: Coin Metrics Network data chart

In October, the BTC spot trading volume of exchanges trusted by Coin Metrics averaged about 11.5 billion U.S. dollars per day, and the highest value on October 15 was 19.4 billion U.S. dollars. This is much lower than the situation where the spot transaction volume often exceeded $20 billion earlier this year. Assuming that the remaining 7 days of October track the daily average of the month, the total BTC spot transactions in October will reach about 350 billion U.S. dollars. This will be higher than the total in July, August and September, but lower than the total transaction volume for each month from January to May this year. The transaction volume in the first five months of this year exceeded US$400 billion.

Learn about the data behind Bitcoin's record high and its first ETF issuance

Source: Coin Metrics market data

There are several underlying factors at play. First, some retail trading volume may have been transferred from BTC to other cryptocurrency assets. Among some of the largest cryptocurrency assets, the current relative share of BTC’s spot trading volume is lower than that of earlier this year. The chart below breaks down Coinbase’s daily spot trading volume by underlying assets, and shows that newly listed assets such as Solana (SOL), Cardano ( ADA ) and Shiba Inu (SHIB) have accounted for an important share of daily trading volume . As the adoption of DeFi and NFT increases, the share of ETH in total transaction volume is also growing. However, the share of BTC has been increasing in the past few weeks, perhaps this indicates that retail investors are returning to the BTC market.

Learn about the data behind Bitcoin's record high and its first ETF issuance

Source: Coin Metrics market data

As the BTC market matures, trading activities through OTC (over-the-counter) counters may also increase, and these activities are not recorded by public market data. Compared with exchange transactions, over-the-counter transactions occur directly between two parties, and one of them is usually a “counter” that facilitates the purchase and sale of certain types of assets. This type of discrete transaction is better for institutions that need to complete large BTC orders, otherwise it may cause too much interference if it is placed on an open exchange.

Another important factor is the total availability of spot BTC to the market. BTC has been held for longer and longer. As of October 25, more than 66% of the total BTC supply has been held for at least 6 months. As some investors sold during the bull market in early 2021, this indicator fell to nearly 50% in May. But most investors who bought before April seemed to have held Bitcoin during the spring crash, causing Bitcoin to rise for at least 180 days.

Learn about the data behind Bitcoin's record high and its first ETF issuance

Source: Coin Metrics Network data chart

With the development of the market cycle, this is an important trend that deserves attention, because it is likely to affect the current supply and demand dynamics of the BTC market. If higher spot volume returns, this may lead to relatively higher volatility in the short term. However, even when relatively few spot BTCs have changed hands, new investment products have seen huge demand.

Launch of the first Bitcoin-focused ETF

At an important moment in Bitcoin and the entire crypto industry, the ProShares Bitcoin Strategy ETF started trading on the New York Stock Exchange last week under the ticker symbol BITO. The fund’s total trading volume on the first day was close to 1 billion U.S. dollars, making it one of the largest ETF issuances ever, with capital inflows close to 570 million U.S. dollars. BITO saw a record inflow of funds this week, and as of last Friday, the fund held $1.17 billion worth of assets. At the end of last week, the Valkyrie Bitcoin Strategy ETF was also launched under the ticker symbol BTF.

Although the launch of the first Bitcoin ETF product in the United States is an exciting development, there are key differences between futures-based ETFs such as BITO and BTF launched last week and spot-based ETFs-the latter is not yet in the United States Approval.

At the most basic level, the difference lies in the type of assets held by the fund. Futures are a kind of derivatives, which represent an agreement to buy or sell assets at a future date, and are widely used in the financial market and the cryptocurrency market. In fact, most of the cryptocurrency trading volume occurs every day in futures and other derivatives, and the daily futures trading volume is usually more than twice the spot trading volume.

Learn about the data behind Bitcoin's record high and its first ETF issuance

Source: Coin Metrics Network data chart

There are many venues offering various futures products for BTC and crypto assets, but the Chicago Mercantile Exchange (CME) is unique because it is a regulated exchange under the jurisdiction of regulatory agencies such as the Commodity Futures Trading Commission (CFTC). Due to CME’s regulatory framework and long-term record, all Bitcoin futures ETFs approved in the United States so far hold CME futures contracts.

The launch of an ETF based on CME futures has had a significant impact on the market structure of Bitcoin CME futures. Open interest is a measure of the total number of active futures contracts in a certain period of time. Among the ETFs launched last week, CME’s BTC futures open positions have reached a record high.

On October 26, Jon Geenty tweeted that the current total open interest in U.S. dollars for all BTC contracts on CME is approximately $2 billion higher than the high point a year ago.

Learn about the data behind Bitcoin's record high and its first ETF issuance

CME futures contracts have a traditional contract structure. There is a clear time when the contract expires, which is called the expiry date. Upon expiration, the contract will be settled at the spot price based on the underlying asset of the futures contract. However, investment instruments such as ETFs will avoid settlement and “rolling” contracts by transferring their positions to contracts with a later expiration date (sell the expiring contract and buy the later contract). This has an important impact on the performance and efficiency of funds holding CME BTC futures.

The ETF must often sell the relatively low-priced recent contracts it holds and purchase longer-term contracts at a premium. The subsequent rolling costs vary depending on market conditions, but some estimates may be between 5-10%. Due to position restrictions imposed by CME, longer-term contracts need to be purchased, which will also complicate costs. Currently, futures ETFs cannot hold more than 2,000 recent contracts. Since the size of a CME BTC contract is 5 Bitcoins, this limits the ETF’s exposure to USD 600 million in recent contracts with a Bitcoin price of USD 60,000. Strong demand last week forced BITO to buy longer-term contracts. As of last Friday, the ETF held 1679 contracts due in October (recent contracts) and 2133 contracts due in November. Due to this high demand and relatively low position restrictions, ProShares subsequently applied to CME for an exemption from position restrictions.

Position restrictions may also force futures-based ETFs to seek BTC price exposure for other assets, such as swaps or stocks with large BTC exposure, such as Microstrategy, which now holds more than 114,000 BTC. However, this will further dilute the ETF’s exposure to spot BTC and may increase the tracking error of BTC-related prices. However, in a short time frame, this error may be small, making futures-based ETFs a good tool for short-term trading and liquidity.

However, since many futures-based ETFs are still in preparation, there may be a large number of products to meet demand in the near future.

Although there are considerable differences between futures and spot ETFs, the release last week has become a milestone in Bitcoin’s maturity and widespread adoption. Only about 9% of investment advisors surveyed by Bitwise earlier this year stated that they have allocated cryptocurrency to their clients, so investment products accessed through traditional brokerage accounts will play a key role in establishing cryptocurrency as an asset class.

Although there are some considerable differences between futures and spot ETFs, the launch last week has become a milestone in Bitcoin’s maturity and widespread adoption. Among the investment advisors surveyed by Bitwise earlier this year, only about 9% said that they have allocated cryptocurrencies to their clients. Therefore, investment products obtained through traditional brokerage accounts will use cryptocurrencies as an asset class. Play a key role in the process.

Network data insight

Aggregate indicators

Learn about the data behind Bitcoin's record high and its first ETF issuance

Source: Coin Metrics Network Data Pro

The BTC hash rate has continued to climb in the past few weeks, and the best available data shows that China’s share of the global hash rate has dropped to close to zero.

Due to the cooling of NFT activity measured by daily ERC-721 transfers, ETH fees dropped within a week. On October 24, the number of ERC-721 transfers in Ethereum was about 103K, the lowest level in more than two months. At that time, the daily ERC-721 transfer recorded on August 23 was about 99K. However, this is still about 10 times the daily average since January this year.

Network highlights

The launch of new futures-based ETF products may have an impact on investors’ existing products and the supply characteristics of BTC.

For most of its life cycle, the trading price of Grayscale Bitcoin Trust (GBTC) is much higher than its net asset value (NAV). However, this premium was turned into a discount in 2021, and the current trading price of the trust is about 13% discount to the net asset value.

Learn about the data behind Bitcoin's record high and its first ETF issuance

Source: Coin Metrics market data

After launching a futures-based Bitcoin ETF last week, Gray reiterated its plan to convert the trust into a spot ETF. This will be a major move because the trust currently holds 3.5% of all bitcoins (approximately 647,000 BTC).

Learn about the data behind Bitcoin's record high and its first ETF issuance

Source: Coin Metrics market data

As a percentage of Coin Metrics’ free float supply, the trust holds approximately 4.5% of the shares. This supply measures the BTC available on the market at any time and removes the supply that can be proved to be lost, destroyed or otherwise inactive. The trust is currently not removed from the free float supply, so GBTC effectively removed an additional 647K Bitcoin from the free float.

As a percentage of Coin Metrics’ free floating supply, the trust holds approximately 4.5% of Bitcoin. The trust has not yet been removed from the free-floating supply, so GBTC effectively removed an additional 647K Bitcoin from the free-floating supply.

According to Coin Metrics’ free-floating supply percentage, which measures the BTC available on the market at any time and deletes provably lost, destroyed or other inactive supply, the trust fund holds approximately 4.5% of Bitcoin. With the growth of investment products such as BTC trusts (and possibly spot ETFs), more and more supplies are basically locked up and held indefinitely, thus changing the dynamics of the crypto market and supply measurement standards.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/learn-about-the-data-behind-bitcoins-record-high-and-its-first-etf-issuance/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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