Increased Advisor Interest in Bitcoin ETFs Amid Hedge Fund Retreat

Recent trends indicate that investment advisors are significantly increasing their holdings in spot Bitcoin exchange-traded funds (ETFs). However, reports suggest that substantial inflows may take time to materialize due to the slower summer months in the United States.

Investment Advisors vs. Hedge Funds

According to analysis from Coinbase, investment advisors have boosted their positions in spot Bitcoin ETFs in the second quarter of 2024, while hedging fund investments have slightly decreased.

• Investment advisors’ holdings of spot Bitcoin ETFs are projected to rise as more brokerage firms finalize their assessments of these funds.
• The percentage of institutional investment attributed to investment advisors has grown by 3%, now comprising 9% of total institutional investments.
• The increase is based on firms managing over $100 million in assets and registered with the U.S. Securities and Exchange Commission’s (SEC) 13-F form.

Market Dynamics and Seasonal Trends

In a separate development, Morgan Stanley has empowered its 15,000 financial advisors to recommend spot Bitcoin ETFs to affluent clients. However, Coinbase warns that these large inflows may be delayed due to the traditional slowdown in client activity during the summer months (June to August), which often results in fewer new clients for financial advisors.

Additionally, the observed reduction in hedge fund holdings may be attributed to strategies that exploit price variances between spot Bitcoin ETFs and Bitcoin futures contracts, often referred to as “trading the basis.” In the second quarter of 2024, Bitcoin futures contracts on the Chicago Mercantile Exchange (CME) experienced a 15% increase, reaching a total of $2.75 billion.

Institutional Investment Landscape

Throughout the second quarter, the ETF sector attracted a net influx of $2.4 billion from institutional investors, reflecting a positive trend despite the asset’s underperformance during this period.

Bitcoin began the second quarter on April 1 at nearly its record high of $71,333 but fell to $60,888 by June 30, marking a decline of approximately 14.6% for that quarter, as reported by CoinMarketCap.

Since the launch of spot Bitcoin ETFs on January 11, total inflows have amounted to $17.35 billion, indicating strong institutional interest in these investment vehicles.