By Brett Munster
Smart money bought the dip
In our last newsletter, we included an analysis sent to investors two days after bitcoin’s price crashed 26% on August 5th, 2024. In that analysis, we argued that the dip was consistent with those seen in previous market cycles. The primary driver of the drop was external macroeconomic factors that triggered a broad liquidity crunch, leading to a decline in the prices of most risk assets. Crucially, there was no indication from on-chain data or adoption metrics of any fundamental breakdown in bitcoin’s long-term outlook. Therefore, we concluded that this dip represented a buying opportunity rather than a cause for panic.
Fast forward a week, and bitcoin has not only recovered from the so-called “crash” but has also returned to pre-dip levels. What stood out during this period was the contrasting behavior of retail versus institutional investors in the wake of the price drop. Retail investors largely panicked, selling off their holdings, while institutional investors took advantage of the lower prices to accumulate more bitcoin. This divergence in behavior is a bullish indicator for the crypto market in the coming months. Let’s delve into the data to understand why.
Since bitcoin reached its all-time high (ATH) in March 2024, there had been a period of distribution, with wallets of all sizes reducing their holdings. This pattern is typical when new ATHs are reached, as many investors seek to lock in profits. However, over the past few weeks, we observed early signs of a reversal in this trend, particularly among the largest wallet sizes, which have begun to reaccumulate bitcoin. This re-accumulation accelerated significantly following the August 5th dip.
Specifically, the supply held by wallets containing between 100 and 1,000 BTC—a reliable proxy for institutional investors—increased substantially after the dip. While many retail investors capitulated as bitcoin hit its lowest levels since late February, institutional investors executed their largest accumulation move since March.
This data underscores a crucial point: the most experienced and well-capitalized market participants saw the dip not as a reason to exit but as an opportunity to bolster their positions at a discount.
The behavior of Long-Term Holders (LTH) offers additional insights. LTHs, who had reduced their holdings during the run-up to the ATH, have now shifted back to a HODLing strategy. In the last week alone, Long Term Holders added approximately 125K BTC to their supply. As shown in the chart below, the growth in total supply held by long-term holders accelerated on August 5 and started its longest uptrend of accumulation since July 2023. The fact that these investors chose to accumulate rather than liquidate during the most significant price contraction of this cycle reinforces the idea that those with a longer investment horizon see substantial upside potential in bitcoin, even amidst short-term volatility.
Further evidence of institutional confidence can be observed in the ETF market. According to analysts at JPMorgan, “the retail order imbalance on August 5th ended the day at -$1 billion, representing a significant deviation of -2.5 standard deviations below the 12-month average. In stark contrast, institutional investors capitalized on the dip, with net buying activity reaching +$14 billion, or +2.9 standard deviations above the 12-month average, during market hours.”
This data illustrates a clear divergence in behavior: while retail investors rushed to sell as prices fell, institutional investors saw a buying opportunity. Importantly, this buying activity was even more aggressive than when bitcoin was trading near its ATH, highlighting the strategic approach of institutions that prioritize value over short-term price movements.
The data surrounding the August 5th dip paints a compelling picture. Institutional investors, who are often more sophisticated and better equipped to handle market volatility, not only refrained from panic selling but actively increased their bitcoin holdings. This behavior is a strong vote of confidence in bitcoin’s long-term value, suggesting that the recent price recovery could be just the beginning of a more sustained uptrend.
The Ethereum ETF after one month
Prior to the launch of the Ethereum ETF, we highlighted the similarities it had to the launch of the bitcoin ETFs. In that article we noted that Grayscale converted its bitcoin trust into an ETF but faced significant asset losses due to its decision to maintain high fees. Now, Grayscale is employing a similar strategy with its Ethereum ETF, charging fees that are 10 times the market rate. We predicted that this would lead to initial selling pressure on ETH, causing a short-term price dip, similar to the one bitcoin experienced.
Now that a month has passed since the Ethereum ETF’s launch, it’s evident that it has been a resounding success. On the first day alone, investors traded over $1 billion worth of ETH ETF shares. To put this into perspective, only a handful of ETFs in history have ever reached such a milestone on their first day of trading. Comparing it to more traditional ETFs, BlackRock launched a manufacturing-themed ETF called MADE just a week before, which did $300,000 in volume on its first day. In contrast, BlackRock’s Ethereum ETF (ETHA) alone achieved 100 times that volume in its first hour on the market. Even the least-traded Ethereum ETF among the eight had more volume than 90% of ETF launches in history.
While the Ethereum ETF launch was massive, it’s worth reiterating that comparing it to the bitcoin ETF launch is somewhat unfair, given bitcoin’s larger market cap and its record-shattering ETF debut. However, Ethereum ETFs still managed to achieve 23% of the trading volume that bitcoin ETFs did on their first day, exceeding our expectations of 10-20%. This volume speaks to the large investor interest in Ethereum, even if it’s not on the same scale as bitcoin.
Trading volume is crucial for liquidity, but it’s also essential to look at how much capital has flowed into these ETFs. Excluding Grayscale, the new ETH ETFs took in $590 million on the first day, far surpassing expectations. In aggregate, these seven new ETH ETFs rank as the third-largest ETF launch by inflows on day one, behind only the bitcoin ETFs and the SPDR S&P 500 ETF. Even when considering Grayscale’s ETF outflows, net flows remained strong at $107 million, roughly 16% of bitcoin’s net inflows on day one, which aligns perfectly with our 10-20% prediction.
As expected, Grayscale’s Ethereum Trust, converted into an ETF under the ticker ETHE, saw significant outflows on its first day. Starting with approximately $10 billion in assets under management (AUM), it experienced $484 million in outflows—almost five times what its bitcoin ETF saw on day one. Although the initial outflow was larger for ETH than for BTC (especially relative to the size of Grayscale Bitcoin Trust), the pace of outflows has since stabilized much more quickly. After 19 days of trading, ETHE has lost roughly 30% of its AUM, a threshold it took the Grayscale Bitcoin Trust 36 days to reach. Interestingly, ETHE appears to have found its footing faster, with outflows slowing significantly in recent days. It took Grayscale’s Bitcoin ETF almost four months to see its first day of zero outflows, whereas ETHE achieved this milestone in just three weeks.
Although the Ethereum ETF launch was only about a quarter the size of the bitcoin ETF launch earlier this year, it still ranks among the largest ETF launches in history. This underscores the robust demand for cryptocurrency investments within the broader investing community and highlights just how extraordinary bitcoin’s ETF debut truly was.
So far, the Ethereum ETF appears to be tracing a path similar to bitcoin’s ETF, albeit on a smaller scale. On day one, there was a significant net inflow, though less than bitcoin’s, followed by a period of fluctuation between positive and negative net flows during the first four weeks of trading. This reflects new investors entering the market while others, particularly those exiting the Grayscale product, sold off their holdings. Notably, bitcoin’s price remained largely flat one month after its ETF launch, as outflows from GBTC counterbalanced the influx of new capital. However, two months after launch, as the selling pressure from GBTC waned, bitcoin surged 57%, reaching new all-time highs. It will be intriguing to see if Ethereum continues to mirror this pattern, as it could signal a potential push to new all-time highs for ETH later this year.
The success of the Ethereum ETF also brings a broader opportunity: with easier access to ETH and the backing of some of the world’s largest asset managers, there is hope that mainstream adoption of Ethereum and its smart contract technology will accelerate. Should the Ethereum ETF continue to capture 10-20% of the inflows that the bitcoin ETF did, this influx of capital could drive ETH’s price—and adoption—to new all-time highs in the coming months.
In Other News
Apple launches crypto “tap to pay” payments.
Goldman Sachs reveals $418 million Bitcoin ETF holdings in latest quarterly filing.
Senate Majority Leader Chuck Schumer expects a crypto bill to pass this year.
The SEC rejected CBOE’s 19b-4 filings for Solana ETFs.
Mt. Gox moves $700M in Bitcoin, sending $75 million to Bitstamp crypto exchange.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital or Onramp Invest.
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