Spot Bitcoin ETF flows show Negative Trend since launch as Ethereum Options out of Sync with Bullish sentiment

The spot Bitcoin exchange-traded fund (ETF) launched by ProShares in October 2021 has seen its first net outflow of funds since its inception, according to data from ETF.com. The fund, which trades under the ticker BITO, had a net outflow of $12.6 million on January 25, 2024, bringing its total assets under management (AUM) to $1.18 billion.

This marks the first time that BITO has experienced a negative trend in its daily flows, which measure the net amount of money moving in or out of the fund. Since its launch, BITO has attracted significant investor interest, becoming the fastest ETF to reach $1 billion in AUM in just two days.

BITO tracks the price of Bitcoin using futures contracts traded on the Chicago Mercantile Exchange (CME), which are settled in cash and not in actual Bitcoin.

The negative flow for BITO coincides with a sharp drop in the price of Bitcoin, which fell below $30,000 for the first time since July 2021 on January 25. The cryptocurrency market has been under pressure from regulatory uncertainty, environmental concerns, and competition from other digital assets.

Some analysts have also suggested that the launch of spot Bitcoin ETFs, which allow investors to gain exposure to the actual Bitcoin rather than futures contracts, may have reduced the demand for BITO and other futures-based ETFs.

However, not all spot Bitcoin ETFs have fared well either. The Valkyrie Bitcoin Strategy ETF (BTF), which launched on January 3, 2024, as the first spot Bitcoin ETF in the U.S., has also seen a net outflow of $3.4 million on January 25, bringing its AUM to $69.4 million. The fund, which trades under the ticker BTF, holds Bitcoin in a trust and charges a 0.9% expense ratio.

The only spot Bitcoin ETF that has seen a positive flow on January 25 is the VanEck Bitcoin Trust (XBTF), which launched on January 5, 2024, as the second spot Bitcoin ETF in the U.S. The fund, which trades under the ticker XBTF, had a net inflow of $2.7 million on January 25, increasing its AUM to $32.7 million. The fund also holds Bitcoin in a trust and charges a 0.65% expense ratio.

The performance of the three spot Bitcoin ETFs may indicate that investors are more sensitive to fees and brand recognition when choosing which fund to invest in. VanEck is a well-known name in the ETF industry, having launched several successful funds in the past, such as the VanEck Vectors Gold Miners ETF (GDX) and the VanEck Vectors Semiconductor ETF (SMH). Valkyrie and ProShares are relatively new entrants in the ETF space and may have to compete harder to attract and retain investors.

The future of Bitcoin ETFs remains uncertain, as the U.S. Securities and Exchange Commission (SEC) has yet to approve any ETF that directly tracks the price of Bitcoin using physical custody or a decentralized network. The SEC has expressed concerns about the potential for fraud, manipulation, and theft in the Bitcoin market, and has asked for more public input on how to address these issues.

Until then, investors who want to gain exposure to Bitcoin through an ETF will have to choose between futures-based or trust-based funds, each with their own advantages and disadvantages.

Ethereum Options out of Sync with Bullish sentiment

Ether, the second-largest cryptocurrency by market capitalization, has been on a tear lately, reaching new all-time highs and outperforming bitcoin in terms of percentage gains. However, the options market seems to be lagging behind the bullish momentum, as implied volatility and skew indicators suggest a lack of enthusiasm among traders.

Implied volatility (IV) is a measure of how much the market expects the price of an asset to move in the future. It is derived from the prices of options contracts, which give the buyer the right but not the obligation to buy or sell the underlying asset at a predetermined price and date. The higher the IV, the more expensive the options and the greater the expected price fluctuations.

Skew is a measure of how much the options market favors one direction over another. It is calculated by comparing the IV of out-of-the-money (OTM) calls and puts, which are options that have strike prices above or below the current market price, respectively. A positive skew means that OTM calls have higher IV than OTM puts, indicating a higher demand for bullish bets. A negative skew means that OTM puts have higher IV than OTM calls, indicating a higher demand for bearish bets.

According to data from Skew, the one-month IV for ether options has dropped to 86%, the lowest level since October 2020. This implies that the options market is not expecting any major price movements in ether in the next 30 days, despite the recent rally and the upcoming launch of Ethereum 2.0, which is expected to improve the network’s scalability and security.

Moreover, the one-month skew for ether options has turned negative, reaching -7%, the lowest level since November 2020. This means that OTM puts are more expensive than OTM calls, indicating a higher demand for downside protection than upside speculation.

These indicators suggest that ether options traders are either taking profits after the rally, hedging their long positions against a possible correction, or simply waiting for more clarity on the direction of the market. In contrast, spot and futures markets are showing more bullish signs, as ether’s price and open interest continue to climb to new highs.

One possible explanation for this divergence is that options traders are more cautious and rational than spot and futures traders, who may be driven by emotions and FOMO (fear of missing out). Another possibility is that options traders are underestimating the potential of ether and Ethereum 2.0 and are missing out on a rare opportunity to profit from a paradigm shift in the crypto space.