Bitcoin ETFs Legitimized the Crypto Industry for Investors

Storm Partners believes that the regulatory nod spot Bitcoin ETFs received through their approval in January is giving investors a lot more confidence in the longevity of the market.

The approval of U.S. spot Bitcoin ETFs in January was a massive milestone for the crypto industry, and Sheraz Ahmed believes it legitimized the crypto industry. These ETFs have gathered more than $57.9 billion in Bitcoin holdings. In Australia, the Bitcoin ETF market is expanding with new launches like the VanEck Bitcoin ETF (VBTC), but they are seeing smaller trading volumes compared to the U.S. Meanwhile, the German government recently moved a large amount of Bitcoin, leading many to speculate that the government plans to sell its holdings. Additionally, Bitcoin miner reserves have hit a 14-year low as miners are focused on financial stability over long-term Bitcoin accumulation.

Bitcoin ETFs Legitimize Crypto Industry

The approval of the first U.S. spot Bitcoin exchange-traded funds (ETFs) in January was a pivotal moment for the cryptocurrency industry, and solidified its legitimacy in the eyes of many investors. This regulatory milestone paved the way for the launch of the first regulated, publicly traded Bitcoin-based investment vehicles, which have had a massive impact on investor sentiment.

Sheraz Ahmed, managing partner of Storm Partners, recently pointed out this big mentality shift among investors. He believes this is not merely due to the existence of the Bitcoin ETFs but to their broader implications. He is convinced that the regulatory approval instilled a sense of security and permanence in the industry, giving entrepreneurs and investors a lot more confidence in the longevity of the market.

The U.S. spot Bitcoin ETFs have accumulated more than $57.9 billion worth of Bitcoin in total on-chain holdings, according to data from Dune. This influx is not just about the investment products themselves but about the regulatory nod they received that are giving investors more peace of mind. Ahmed even compared it to the peace of mind gained from a good night's sleep.

Bitcoin ETF flows (Source: Farside Investors)

However, recent data indicates a temporary pause in the growth of Bitcoin ETF inflows. On Jun. 10, the U.S. Bitcoin ETFs experienced a break in a 20-day streak of net positive inflows, followed by four consecutive days of net outflows. By Jun. 18, the cumulative net outflows for spot Bitcoin ETFs stood at over $152.4 million, according to Farside Investors data. 

Australia's Bitcoin ETF Market Expands

While U.S. Bitcoin ETFs have slowed down a bit, the first Bitcoin ETF that got approved for the Australian Securities Exchange (ASX) closed its first trading day with a volume of $1.3 million (1.9 million Australian dollars). This is still much lower compared to the debut trading day for the United States’ spot Bitcoin ETFs, which saw $4.5 billion in total trading volumes across 10 funds, averaging around $450 million each.

VanEck, the issuer of the VanEck Bitcoin ETF (VBTC), is very optimistic about the product's growth potential despite the smaller market size in Australia. Jamie Hannah, VanEck's deputy head of investments and capital markets, also acknowledged the market size difference but pointed out that there is a lot of interest from both retail and professional investors seeking Bitcoin exposure through ASX.

Arian Neiron, CEO for VanEck in the Asia-Pacific region, also shed some light on the growing demand in Australia for a regulated, transparent, and familiar investment vehicle. Neiron believes that VBTC simplifies access to Bitcoin by managing the technical aspects of buying, storing, and securing digital assets, making it much more accessible to investors.

Although VBTC is the first spot Bitcoin ETF listed on ASX, Australia has seen the launch of other Bitcoin ETF products. The Monochrome Bitcoin ETF was recently approved and started trading on Cboe Australia, the country's second-largest stock exchange. Additionally, the Global X 21Shares Bitcoin ETF became the first Bitcoin ETF to debut in Australia in April of 2022.

German Government Moves Huge Amount of BTC

On Jun. 19, a crypto wallet that was labeled “German Government (BKA)” by the on-chain analytics firm Arkham started moving Bitcoin. The wallet held close to 50,000 BTC since February 2024, but recently moved around 6,500 BTC. Now, people seem to think the German government might be selling its holdings. These funds were reportedly seized from the operator of the pirated movie website Movie2k.

The German government-linked wallet executed four transactions on Jun. 19. It transferred 6,500 BTC, worth more than $425 million, to the wallet address “bc1q0unygz3ddt8x0v33s6ztxkrnw0s0tl7zk4yxwd” and moved another 2,500 BTC, worth $154 million, to its own address. 

After this, the 6,500 BTC were moved again, with 2,500 BTC transferred to the wallet address “bc1qq0l4jgg9rcm3puhhfwaz4c9t8hdee8hfz6738z,” which then distributed the funds in four transactions of 500 BTC each. Two of these transactions went to crypto exchanges Kraken and Bitstamp, while the other two were directed to non-labeled private addresses. The wallet still holds 43,359 BTC, valued at $2.83 billion. 

The potential impact of selling such a large amount of BTC has become a topic of discussion among crypto enthusiasts. Some people in the crypto community are even attributing the recent increase in short positions and the dip in Bitcoin’s price to these movements.

Globally, governments regularly confiscate BTC and other digital assets from criminal activities and occasionally auction off these holdings. The United States government has sold a large portion of Bitcoin seized from the infamous dark web marketplace Silk Road. 

In 2014, American businessman and Bitcoin advocate Tim Draper actually bought Silk Road Bitcoin in an auction organized by the U.S. Marshals.

Bitcoin Miner Reserves Hit 14-Year Low

Meanwhile, the amount of Bitcoin held by miners has dropped to its lowest level in more than 14 years, according to data from IntoTheBlock. On Jun. 19, miner reserves fell to 1.90 million Bitcoin, down from 1.95 million BTC at the start of the year. 

Bitcoin miner reserves (Source: IntoTheBlock)

Lucas Outumuro, the head of research at IntoTheBlock, explained that miners are expected to hold less Bitcoin over time due to the halving events, which lead to pressure on their profit margins and make them more likely to sell their reserves.

In Bitcoin’s proof-of-work consensus mechanism, miners earn Bitcoin for validating transactions and securing the network. Their mining reserves refer to unsold Bitcoin held by miners. Approximately every four years, Bitcoin’s mining rewards are halved. The most recent halving that happened on Apr. 20, 2024, reduced rewards from 6.25 BTC to 3.125 BTC. Despite this reduction, Outumuro noted that historically, this selling pressure has been relatively slow.

The U.S. dollar value of mining reserves, however, are near an all-time high of about $135 billion. This indicates that miners have more value on their balance sheets despite holding fewer Bitcoins. 

Sascha Grumbach, CEO of tokenized mining firm Green Mining DAO, shared that today’s miners have learned from past cycles and no longer overleverage or hold excessive amounts of Bitcoin, which is a strategy that proved detrimental in the past.

An April report by Coinshares predicted that Bitcoin’s hash rate will surge in 2025 after a post-halving dip. The decreasing amount of Bitcoin produced per unit of hash power and rising production costs contribute to this trend. Grumbach also pointed out that miners are currently focusing on short-term financial stability rather than long-term accumulation of Bitcoin.