Glassnode Research: Optimistic about Bitcoin Spot ETF Bringing in $700 Billion in Capital

The on-chain analytics tool Glassnode team has released a report stating that Bitcoin is showing strong on-chain volume, with significant price growth, an increase in long-term holders, and a higher correlation with gold. Once the United States approves a Bitcoin spot ETF, the market is expected to see around $70 billion flowing into the BTC spot ETF.

This article is compiled and translated. For any doubts, please refer to the original text. This article is not investment advice.

Bitcoin Shows Strong Market Performance Recently

Excellent Bitcoin Market Data

In October, the market expected enhanced regulations, especially concerning the approval of Bitcoin spot ETFs, which increased market attention. As a result, the trading volume of Bitcoin futures on CME Group significantly increased.

This led to an upward trend in Bitcoin (BTC) prices, with its market dominance reaching a peak of 53% in October, the highest since April 2021. BTC has appreciated by over 108% in price performance this year.

In terms of supply, the liquidity of BTC has been decreasing this year, with long-term holders holding over 76% of Bitcoin, reaching a historical high. Reduced liquidity indicates that BTC prices will become more sensitive. Long-term holders are defined as those who have not traded for at least five months.

The increase in non-liquid supply of Bitcoin also means that exchange balances are decreasing, as many market participants are moving their assets from liquid exchanges to non-liquid private wallets, showing a preference for long-term holding.

Long-term holders have a strong belief in the current price trend. Even though these holders have unrealized profits, they have not cashed out, indicating their belief that the upward trend will continue.

Institutional Investor Demand Increases

The recent upward trend in the market is mainly driven by the positive expectations of the approval of Bitcoin spot ETFs, largely influenced by mainstream financial institutions such as Invesco and BlackRock.

According to Bloomberg's analysis, there is a 90% possibility that Bitcoin spot ETFs will be approved by January 10 next year, which is the final legal deadline for the SEC to make decisions on certain institutions' applications. The SEC has not appealed the court ruling that prohibits it from delaying ETF approvals arbitrarily, creating an optimistic and hopeful atmosphere in the market.

The increasing optimism among market institutional participants is evident in the changes in the Bitcoin futures trading market. The open interest of Bitcoin futures on CME Group saw significant growth in October, with Bitcoin futures' open interest relative to the market reaching a historical high of 27.8%, surpassing Binance for the first time since the bear market began.

CME Group is increasingly attractive to professional and institutional investors, highlighting the growing willingness of institutions to participate in the crypto space, gradually integrating crypto assets into traditional financial investment portfolios.

Similarly, the Bitcoin options market has also seen significant growth. In October, the open interest of Bitcoin call options increased by $43 billion, an 80% growth, as more professional institutions utilize these tools for long-term Bitcoin investments.

Increased Correlation between Bitcoin and Gold

The appeal of Bitcoin as digital gold is gradually increasing. Amid escalating geopolitical tensions, the average 30-day correlation between Bitcoin and gold in October was 0.65, reflecting similar price trend movements and a significant correlation between Bitcoin and gold prices.

Evaluating the Impact of Bitcoin Spot ETF Approval

The approval of the first Bitcoin spot ETF should not be underestimated. It signifies a potential influx of significant new demand. How much of this demand can actually be quantified for trading purposes remains to be seen.

Comparing Past Gold ETF Launches

To try to predict the impact of the first Bitcoin ETF on the market, one can first compare the launch of past gold ETFs.

Over the ten years following the launch of the first gold spot ETF in 2003, the price of gold surged from around $350 per ounce to approximately $2,000, translating to an annualized return rate of over 15% and a total appreciation of over 400%. This growth narrative provides an optimistic outlook for the potential impact of a Bitcoin spot ETF on the Bitcoin market.

While some of gold's strong performance during this period can be attributed to favorable macroeconomic conditions and a weakening dollar, the introduction of gold spot ETFs did provide a channel for a broader range of investors to invest in gold. The anticipated launch of a Bitcoin spot ETF has generated similar excitement.

Expected Long-Term Inflow of $700 Billion

Glassnode assumes that the Bitcoin spot ETF will have two main sources of net capital inflow:

• Stock and bond markets: With recent macroeconomic shifts towards hedge assets, it is assumed that capital will move from stock and bond markets to Bitcoin.
• Gold market: As the correlation between Bitcoin and gold gradually rises, it is assumed that this will attract gold investors looking to diversify risk.

For discussion purposes, Glassnode selects three important ETFs—SPY, Vanguard Total Stock Market, and Vanguard Total Bond Market—and assumes that 10% of their total assets under management could potentially shift to Bitcoin spot ETFs. This assumption is based on the current stringent financial environment facing stocks and bonds, making Bitcoin a potential alternative investment choice for investors seeking hedging opportunities.

Additionally, Glassnode assumes that 5% of the total assets under management in the gold market will also shift to Bitcoin spot ETFs. While gold remains a mainstream hedge asset, the uniqueness of Bitcoin as a digital version of a store of value may attract some gold investors.

Based on these assumptions, Glassnode estimates a total capital inflow of approximately $606 billion from stocks and bonds and $99 billion from the gold market, totaling around $700 billion flowing into Bitcoin spot ETFs.

Compared to Galaxy Digital's expectation of $140 billion in capital inflow in the first year or Matrixport's assessment of $250 to $500 billion, Glassnode's forecast of $700 billion may seem overly optimistic. However, the report states that this amount represents only 1% of the total market value of $7 trillion in U.S. ETFs, making it still achievable.

Conclusion

The approval of a Bitcoin spot ETF marks a turning point for Bitcoin's transition from individual investors to institutional investors, highlighting Bitcoin's regulatory acceptance and laying the foundation for a significant new demand from professional investors in the near future.

Currently, various market data for Bitcoin looks optimistic, and considering the previous uptrend in gold spot ETFs, Glassnode believes that the Bitcoin market will see a long-term growth trend catalyzed by ETFs.

However, whether the Bitcoin spot ETF will have the same impact on the market as predicted by various institutions remains uncertain, as there are many unknown variables. Investors still need to carefully assess their own risks and engage in independent thinking.

This article is not investment advice.