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Data Indicates Decline in Bitcoin Wallets Following Spot Bitcoin ETF Launches
- The Spot Bitcoin ETFs have experienced record inflows of USD $5.2bn one month post-approval.
- The introduction of ETFs has led to a significant drop in the number of Bitcoin wallet holders, as traditional investors opt for ETFs over direct ownership.
- This has raised concerns about the centralisation of digital assets and potential impacts on network decentralisation and security.
- 21Shares President Ophelia Snyder predicts a consolidation in the Spot Bitcoin ETF market due to fee competition, saying there will be a lot fewer ETFs soon.
The Spot Bitcoin ETF launches have been among the most successful in history. One month post-approval, the exchange-traded funds (ETF) have seen a record USD $5.2bn in inflows as of February 23, Bloomberg ETF analyst James Seyffart writes.
BlackRock’s IBIT and Fidelity’s FBTC are by far the biggest winners, being the ETFs with the largest inflows. However, data analysts at Santiment have come across something interesting in the context of Bitcoin ETFs. The number of wallets actually holding BTC is down.
‘Peak Wallet’ Reached Due to BTC Exposure in ETFs
The data shows that there are now 729.4K fewer holders of Bitcoin than a month ago—Santiment says this number peaked on January 20 at 52.95 million wallets.
ETFs offer a more accessible and familiar route for traditional investors to gain exposure to crypto without the complexities and security concerns associated with direct ownership. This convenience comes at the cost of reducing direct interaction with the underlying blockchain technology.
However, this shift has broader implications for the crypto sector. While ETFs can indeed funnel substantial investment into the market, enhancing liquidity and potentially stabilising price volatility, they also centralise asset holdings.
Some, like Jim Bianco, argue that this centralisation is contrary to the decentralised ethos that crypto, specifically Bitcoin were built upon. The decrease in active, non-zero balance wallets could lead to a reduction in network decentralisation, potentially impacting the security and resilience of the network, ETF opponents argue.
Santiment highlights in their post on X that any ETF decision regarding Ethereum would have an impact on the 114.95 million ETH wallets.
“Three To Five Winners” Max
21shares President Ophelia Snyder believes that we will soon see fewer Spot Bitcoin ETFs on the market. Snyder thinks due to fee wars, smaller providers will have difficulties competing with larger ones, especially those over USD $1bn.
If you don’t cross $1 billion soon, there is no way that this works because there is a compounding effect of success begetting success. The space will be smaller next year. There is no way it won’t be.
Ophelia Snyder Speaking to Decrypt Snyder implied that the process for banks and brokers to offer ETFs, including those based on Bitcoin, is intricate and can take several months.
While some firms like Charles Schwab and UBS have started to provide their clients with access to the spot Bitcoin ETF, others, such as Vanguard, have opted not to engage with it, pointing to Bitcoin’s volatility as a deterrent, Snyder said.
Author
Aaron Feuerstein
Aaron Feuerstein is a freelance writer based in Melbourne. His focus is on decentralised finance and the regulatory space surrounding blockchain. He holds a Master's in Accounting. When he is not studying the latest legal case, he enjoys his time as a modest but eager hobby cook.
