Bitwise: 2024Q2 13F file encourages institutions to continue buying BTC

Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by: 0xjs@Golden Finance

The biggest problem in the cryptocurrency field at present is whether institutions and professional investors will allocate cryptocurrencies on a large scale.

This issue is more important than the results of the presidential election, the prospects of Congress legislation, and the development of technology in the blockchain field.

The reason is simple: mathematics.

Most investable assets are mainly held by professionals. For example, research shows that institutions control about 80% of the U.S. stock market. In contrast, institutions hold relatively few cryptocurrencies. The most radical estimates I've ever seen suggest that they may own 10% of all Bitcoins.

To make this figure reach 50% market share, professional investors need to buy about $500 billion in Bitcoin. Needless to say, this will have a huge impact on the price.

So...will they buy it?

Due to the emergence of Bitcoin ETFs and the US SEC's requirement that institutions use Form 13F to disclose their ETF holdings quarterly, we can now answer this question. The latest batch of 13F files covering the second quarter of 2024 were listed last week and they show interesting content.

Here are three key points.

Key Find 1: Yes, institutions are continuing to buy Bitcoin ETFs

The first discovery and most important thing: institutions continue to buy Bitcoin ETFs in the second quarter.

This is not guaranteed. Bitcoin’s price fell 12% in the second quarter of 2024, and many wonder if that would scare away institutional investors. The answer is yes "no".

The total number of institutional investors holding Bitcoin ETFs increased by 14% month-on-month, from 965 to 1,100. Their share of total assets (AUM) managed by Bitcoin ETFs also increased from 18.74% to 21.15%. Overall, the total amount of Bitcoin ETFs held by institutional investors at the end of the quarter was $11 billion.

There are some healthy flows in these capital flows. In the second quarter, 112 investors holding Bitcoin ETFs sold the asset at the end of the first quarter, while 247 new companies made their first investments. Overall, Bitcoin ETFs have added 135 new companies.

In my opinion, this is a good sign. If an institution buys Bitcoin when prices fluctuate, imagine what happens to a bull market.

Key Finding 2: The speed of institutional adoption is historically

significant

Critics like to point out that Bitcoin ETFs are primarily held by retail investors, who hold about 79% of the size of Bitcoin ETF’s asset management. They use this fact to show weak institutional demand.

This is completely wrong. Bitcoin ETFs are adopted by institutions at the fastest pace in history.

I used a list of Bloomberg Eric Balchunas to look at institutional ownership of the 10 fastest-growing new ETFs ever ranked by AUM one month after they went public. Specifically, I looked at the number of institutional holders and total institutional AUMs of these ETFs after two quarters of listing to compare with the current Bitcoin ETF ownership status.

Fastest-growing non-bitcoin ETF: Institutional adoption after two quarters of listing

Source: Bitwise Asset Management, data from WhaleWisdom and Eric Balchunas. Data as of June 30, 2024.

(1) The ranking of non-bitcoin ETFs is based on AUM one month after its listing.

(2) Note: QQQ was launched in March 1999. There was no 13-F data for the fund until the first quarter of 2021, so these figures reflect ownership after nine quarters of listing.

It's impossible to compare at all. The only comparable ETF is Invesco's QQQ, but this is just a comparison between apples and oranges. QQQ was launched in March 1999, but I can't find any historical 13F data from the fund until the first quarter of 2001. In other words, the numbers in the QQQ chart represent how institutional adoption is after the fund's nine quarters of growth. Even so, the number of buyers of Bitcoin ETFs is 3 times higher!

Some might think that comparing Bitcoin ETFs in general with individual ETFs is unfair. But even if you only look at a single Bitcoin ETF, they will top the list. For example, Bitwise's Bitcoin ETF (which ranked fourth in Bitcoin ETF at the end of the second quarter) had more institutional holders (139 people) than SPDR's giant GLD (118 people) at this stage of its inception.

ETFs are a unique investment product that can be held by both institutional and retail investors. We should not let retail investors adopt historic adoption of Bitcoin ETFs cover up the fact that Bitcoin ETFs have also gained favor from institutional investors faster than any other ETF in history.

Key Finding 3: Most institutions are still at the initial level of testing

There is another fact: The documents show that only 0.47% of the portfolios that reported holding Bitcoin ETFs in the second quarter invested in Bitcoin.

I find this number very inspiring. After more than 6 years of managing cryptocurrency risks for professional investors, we have noticed a trend in Bitwise that they tend to build their own positions over time. Many people start with 1% or less of their portfolio, but over time, this number tends to rise to 2.5% or even 5%.

I expect the average holdings of institutional investors will exceed 1% in a year and continue to rise from there.

Conclusion: ETF is a multi-year narrative

All in all, I found the 13F file for the second quarter of 2024 to be very encouraging. Despite the price drop, institutions continued to buy Bitcoin ETFs in the second quarter. Hundreds of new institutional investors made their first purchases. Moreover, Bitcoin ETFs are adopted by institutions faster than any ETF in history.

As the former CEO of ETF.com, I have witnessed the launch of ETFs for twenty years. One thing I know is that most ETFs are built over time: Year one can be a challenge, but momentum tends to grow gradually in Year two, third, fourth and fifth. I expect the same thing to happen here. After all, the major platforms are just now opening up access to Bitcoin ETFs (Morgan Stanley approved them earlier this month). I expect Bitcoin ETF inflows to be greater in 2025 than in 2024 and 2026 than in 2025.

Institutions are emerging and growing in size.