Bitcoin ETFs Gain Favor with Advisors, Hedge Funds Less Enthusiastic

• Advisor interest in Bitcoin ETFs increases, with major firms like Goldman Sachs and Morgan Stanley boosting their holdings.
• Hedge funds reduce their exposure to Bitcoin ETFs, shifting their strategies.
• Despite Bitcoin price volatility, institutional inflows into U.S. spot Bitcoin ETFs surged in Q2 2024.

A market study by Coinbase analysts reveals that advisor interest in Bitcoin spot ETFs is increasing while hedge funds are reducing their exposure. The report highlights that institutional inflows into U.S. spot Bitcoin ETFs surged in Q2 2024 even as Bitcoin prices experienced significant volatility.

Major investment advisors, including Goldman Sachs and Morgan Stanley, have boosted their holdings in Bitcoin ETFs, holding $412 million and $188 million, respectively. Both likely hold shares on behalf of clients through their private banking and wealth management divisions.

Coinbase emphasizes that the proportion of institutional holders classified as ‘investment advisors’ rose from 29.8% to 36.6%, representing an increase from 6% to 9% of total shares. In contrast, the percentage of hedge fund holdings among institutions declined from 37.7% to 30.5%, dropping from 8% to 7% of total shares.

Essentially, while financial advisors at Goldman Sachs and Morgan Stanley recommend Bitcoin ETFs to clients, hedge funds’ interest in the Bitcoin product is waning.

Coinbase analysts suggested that many hedge funds may be purchasing ETFs to trade the basis, as evidenced by a 15% increase in open interest in CME Bitcoin futures, reaching 18.2k contracts ($2.75 billion) over 2Q24.

The report also revealed that the ETF market saw net inflows of $2.4 billion in the second quarter of the year. Meanwhile, assets under management (AUM) for spot Bitcoin ETFs decreased from $59.3 billion to $51.8 billion due to the decline in BTC prices from $70,700 to $60,300.

Market analysts at Coinbase believe the continued ETF inflows during Bitcoin’s underperformance are a telltale sign of a promising indicator of sustained interest in crypto from the new pools of capital accessing ETFs. 

Importantly, Coinbase notes that the broader cryptocurrency market remains sensitive to global macroeconomic trends, significantly impacting investor sentiment. The July 2024 U.S. Consumer Price Index (CPI) report indicated a 2.9% year-over-year increase, leading to speculation that the Federal Reserve might cut interest rates.

This optimism is balanced by other strong economic signs, like robust retail sales and steady jobless claims, indicating that the U.S. economy might not be slowing down as quickly as some had anticipated.