During the first quarter, spot bitcoin ETFs experienced significant inflows, even with lackluster price movements. An analyst anticipates that the next three months could be even more substantial, irrespective of any recovery in prices.
Juan Leon, senior investment strategist at Bitwise, which manages the BITB bitcoin ETF, stated, “Despite the current market conditions persisting into the second quarter, we are observing strong interest from financial advisors and institutional investors.”
He continued, “While retail interest remains low due to an overwhelming focus on price fluctuations, professional investors are increasingly acknowledging the global momentum toward bitcoin adoption, particularly ignited by positive signals from the Trump administration. Many view the current market as an opportunity to initiate or bolster their allocations.”
The ETFs attracted over $1 billion in inflows during the first quarter of this year, despite a challenging macroeconomic environment that led to the largest quarterly loss for the S&P 500 Index since 2022, alongside a 13% decline in bitcoin’s price.
Leon forecasts even more robust inflows in the second quarter, potentially reaching $3 billion or more, as wirehouse platforms become more accessible and legislative policies evolve.
ETF inflows may be misleading
The $1 billion in net inflows for the first quarter—and whatever is generated in the second quarter—may not accurately indicate investor enthusiasm for purchasing bitcoin at these lower prices. This stems from the so-called basis trade (or cash-and-carry), where institutional investors purchase the spot bitcoin ETF while simultaneously shorting CME bitcoin futures, allowing them to earn yields without direct exposure to price volatility.
In late 2024, that yield was significantly high in the double digits, remaining comfortably above the risk-free rate for much of the first quarter. However, it has recently dropped to around 5%, indicating that arbitrage-driven ETF inflows may start to diminish.
Staying optimistic: The early stages
Nate Geraci, president of the ETF Store, expressed, “While favorable price conditions would certainly help, it’s crucial to keep in mind that the adoption of spot bitcoin ETFs among these groups is still at an early stage. As they gain more confidence in allocating to bitcoin, it should create a strong tailwind for inflows moving forward.”
Although several institutions have already ventured into bitcoin allocations over the past year, their contributions still account for only a minor share of ETF investments. Most funds continue to come from retail investors—a point recently highlighted by BlackRock CEO Larry Fink, whose IBIT fund leads asset accumulation among spot ETFs. However, with a more welcoming regulatory atmosphere towards the industry and the government’s potential involvement in bitcoin investments, this dynamic might shift dramatically soon.
A recent survey conducted during an ETF conference in Las Vegas indicated that 57% of financial advisors intend to increase their allocations in crypto ETFs this year, as crypto’s “reputational risk” factor has diminished among industry professionals.
The perception that bitcoin may serve as a “safe haven” asset during economic downturns—an anxiety amongst investors—could further enhance confidence in the cryptocurrency, especially amidst growing recession fears.
David Siemer, CEO of Wave Digital Assets, said, “If we continue to see expectations for rate cuts, signs of economic instability, or escalating fears regarding a recession in the US, Bitcoin’s identity as ‘digital gold’ will likely attract additional inflows. While some short-term traders may exit if price weakness continues, long-term players will maintain robust inflows, especially as institutional adoption accelerates throughout the year.”
