Welcome back to Learn, Apollo’s weekly newsletter about the Bitcoin ecosystem and people building it.

This week’s edition is an overview of the bitcoin spot ETFs, and a evaluation of how they’ve performed over the roughly three months since their launch.

We’ll take a look at the data (bitcoin inflows, price correlation, and early investors), and consider some of the bullish and bearish assessments.

Before we get into it, if you’re not subscribed yet you can do so here. And if you’d like to share this newsletter (which we’d definitely appreciate), you can forward the email or send this link to a friend.

Hope you enjoy it.

— Julian Fahrer, Editor and Apollo CEO

ETF Pulse Check: Q1 Review

⏩️ TL;DR

It’s been about three months since the Bitcoin spot ETFs launched. In that tine, they’ve taken in approximately net 220k BTC ($14B).

The net ETF flows have been highly correlated with the bitcoin price action. First down, then up, then flat for the past month.

Form 13F filings from Registered Investment Advisors to the SEC show a variety of funds investing in the ETFs. Many are small, though a couple of banks and large funds have already begun accumulating.

Despite some criticisms and doubts, the launch has largely exceeded expectations and many predictions.

🌊 BTC Flows

In three months, the ‘New Nine’ bitcoin ETFs have collectively accumulated 535k BTC. That’s simply an enormous amount, already representing more than 2.5% of all the bitcoin that will ever exist.

Grayscale (GBTC) has seen significant outflows since launch, losing 315k BTC total. This brings the net inflows to 220k.

The largest inflows have gone to Blackrock (IBIT) and Fidelity (FBTC), with 274k BTC and 155k BTC respectively. As you can see in the chart above, Blackrock already holds more BTC than Microstrategy. Again, it only took them three months.

💥 Market Impact

As the chart below demonstrates, new ETF flows have been highly correlated with BTC price.

We can more or less divide the time since launch into three phases. Immediately post launch new flows were negative or flat for a few weeks. This corresponded to the price dip and chop we saw through January.

Then, big positive net flows in Feb and March coincided with the BTC run up from the low 40’s to 74k.

The third phase has seen flat net flows, and similarly flat price action with a slight drawdown.

💰️ Holder Snapshot

Nearly two hundred funds have filed 13F reports with the SEC so far, declaring ownership of one or more of the ETFs.

This will continue (and probably accelerate) for the next several weeks until the deadline for Q1 reporting of 15 May.

Here is a snapshot of what we’ve seen so far, including some median figures and some of the top holders, by % allocation of portfolio.

The main takeaway at this point is how small the allocations tend to be (aside from outlier holders below, almost all are <1%).

Our POV is that this is incredibly bullish, for reasons discussed further below.

Blackrock (IBIT)

• Portfolio % allocation of holders (median): 0.036%

• Fund AUM (median): $908,500,000

Fidelity (FBTC)

• Portfolio % allocation of holders (median): 0.054%

• Fund AUM (median): $1,100,000,000

Grayscale (GBTC)

• Portfolio % allocation of holders (median): 0.033%

• Fund AUM (median): $865,500,000

🔎 Evaluation

All things considered, how should we evaluate the first three months?

Rather than just highlight exclusively the reasons to be optimistic, I’m going to address some of the main serious criticisms - best articulated by this post from Jim Bianco.

Paraphrasing, they are:

1. Inflows have slowed recently and this is bearish.

2. The 13F filings of holders have been underwhelming.

3. The ETFs themselves compromise fundamental value propositions of bitcoin (namely self-custody and decentralization) - and this is bearish.

Taking these in turn:

Putting ‘slowed inflows’ in context

The recent sideways action isn’t surprising to any seasoned bitcoin investor.

It’s important to understand how the bitcoin market has worked historically. There are nuances typically lost to Wall Streeters who are unfamiliar with the asset and how it trades.

First, most of the upside occurs in short bursts. As the chart below shows, there are have been 15 3-day periods of more than 15% price appreciation over the past five years.

However, it’s not all fireworks. In fact, despite bitcoin’s reputation for volatility, most of the the time the price action is pretty boring:

The point is, a month or two - or even much longer - of sideways action is the norm bitcoin. Therefore, we would expect ETF flows to follow a similar pattern.

However, even this is probably giving too credit to the criticism and accepting its premise that there has been anything ‘disappointing’ about the demand for the ETFs so far.

So, let’s look at the actual performance, shall we?

IBIT currently has the 11th highest daily inflow streak of any ETF at 69 straight days. FBTC made it to something like 62 straight days. These have, by any measure, been some of the most successful ETF launches of all time.

Moreover, they’re collectively on track to smash just about every prediction for AUM from a variety of sources:

As Eric Balchunas put it so well below: any characterization of the ETFs’ performance - which has been 10x QQQ - is simply not in touch with reality.

Disappointing 13F filings?

Next, let’s consider the 13F filings. Who actually owns the ETFs? Do they matter? Are they actually investing much?

The short answer, is that it’s simply way too early to judge. As mentioned, we’re still weeks away from the Q1 filing deadline.

But let’s take the data at face value: mostly small firms (though was some notable exceptions like City Holding Co - a Royal Bank of Canada subsidiary), and mostly small allocations.

How is this anything other than extremely bullish? What it shows is that all the capital in the world is still on the sidelines, but that the seal has been broken.

And with this humble beginning, the ETFs are already massive winners and BTC is up 50% YTD.

Consider the opposite scenario: where all the big names had already filled their bags at this stage. That would be the bearish case, right?

We’re playing the long game here. Something bitcoiners know how to do.

Increasing centralization, and failure of self-custody

Finally, there is the in-principle argument against the ETFs themselves. The idea that ETFs compromise the core mission of disintermediating banks, and divert people from sovereign self-custody.

First, it must be said that this has nothing to do with the performance of the ETFs per se. Nonetheless, it’s an important argument. Though too complex to cover in its entirety here.

I’ll just say this: it has some merit. Undoubtedly, for many millions of people now, they will be onboarded to bitcoin first through ETFs. And maybe that’s it.

But there’s no direct centralizing effect of Blackrock holding (via Coinbase) bigger and bigger amount of BTC. Simply holding more of it gives you no more power over the network.

However, it must be said that there are indifferent centralizing trends. For one thing, Coinbase is the custodian for most of the new ETFs.

But this must be considered in light of how the bitcoin network is also being strengthened. The ETF approval and now success means Bitcoin is mainstream, and staying there.

Bitcoiners can have honest disagreements over this, whether and to what extent the benefits are worth the costs. Whether bitcoin should be seeking political approval at all.

But whatever your persuasion, the undeniable fact is that the asset, the network, and the culture has been profoundly de-risked. For institutional investors, and for the millions of people seeking access to bitcoin through them.

That’s it for this week. If you enjoyed it, please share this newsletter with a friend. It helps us a lot!

Until next time.

Julian