ETF Bitcoin spot made new history by recording the largest one-day inflow of funds worth $1.05 billion, on March 12, 2024. This indicates high investor optimism for this well-known crypto asset.
What is a Bitcoin Spot ETF?
Bitcoin Spot ETF is an investment product that allows investors to buy and sell Bitcoin on the stock exchange like ordinary shares.
Unlike Bitcoin futures ETFs that track the price of Bitcoin futures contracts, Bitcoin Spot ETFs invest directly in Bitcoin, offering purer exposure to this asset.
What Causes the Large Inflow?
Some of the factors driving large inflows into Bitcoin Spot ETFs include:
- Bitcoin Spot ETF Launches in the United States: This is an important milestone for the crypto industry as it opens up access to a wider range of institutional and retail investors.
- Good Bitcoin Performance: Bitcoin prices have shown a positive trend since the beginning of 2024, and many investors are optimistic that this trend will continue.
- Rising Inflation: Investors are looking for alternative assets to protect their wealth from inflation. Bitcoin is considered a potential hedge asset due to its decentralized nature and limited quantity.
Also read: Bitcoin (BTC) Breaks Through $73,000: Rally Continues, Will It Keep Rising?
Impact of Large Inflows
A large inflow of funds into the Spot Bitcoin ETF could have several positive impacts, such as:
- Increasing Bitcoin market liquidity: This can make Bitcoin trading easier and more efficient.
- Increasing Bitcoin credibility: This may attract more institutional investors to the crypto market.
- Driving Bitcoin price: An increase in demand can lead to an increase in the price of Bitcoin.
According to a data report from BitMEX Research, BTC managed to break records, with net inflows totaling more than $1 billion.
This means that there are 14,706 BTC flowing into ETFs per day, with the increasing adoption of digital assets. These inflows pushed the total net inflows since January 11, 2024, to $4.1 billion, further increasing Bitcoin's appeal as an investment asset.
Then, ARK 21Shares Bitcoin ETF (ARKB) with $93 million in inflows, followed by Fidelity's FBTC spot bitcoin ETF (FTBC) and Bitwise Bitcoin ETF (BITB) with $51.6 million and $24.6 million, respectively, on the same day .
How Bitcoin Spot ETFs Work
Spot Bitcoin ETFs, unlike direct Bitcoin holdings, offer exposure to Bitcoin prices through a more traditional investment structure:
1. Ownership structure
- The Spot Bitcoin ETF is managed by an investment management company.
- The company buys Bitcoin with funds collected from investors who buy ETF shares.
- The ETF then stores the Bitcoin in safe storage (custodian).
2. Unit share
- ETFs are divided into unit shares, similar to shares in traditional companies.
- The price per share unit reflects the value of the Bitcoin held by the ETF divided by the number of share units in circulation.
3. Purchase & Sale
- Investors can buy and sell ETF share units on the stock exchange like ordinary shares.
- When investors purchase share units, they are not directly purchasing Bitcoin, but are gaining exposure to its price movements.
4. Price maintenance
- ETF managers continuously monitor Bitcoin prices and ETF unit shares.
- They may make purchases or sales of Bitcoin to ensure the unit share price reflects the price of Bitcoin as accurately as possible. This process is called "price maintenance" (price creation).
5. Advantages & Disadvantages
- Investors' profits and losses depend on the movement of ETF share unit prices.
- If the price of Bitcoin rises, the price of ETF share units will also rise, and investors can make a profit when selling their share units.
- Conversely, if the price of Bitcoin falls, the price of ETF unit shares will also fall, and investors may experience losses.
Conclusion
The $1.05 billion inflow of funds into the Bitcoin Spot ETF is a positive sign for the crypto industry. This shows that investors are increasingly interested in Bitcoin as an investment asset. Despite the risks, Bitcoin Spot ETFs can be an attractive option for investors looking to gain exposure to this well-known crypto asset.
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