Asset manager Blackrock has emerged as the frontrunner in the Bitcoin ETF race in terms of inflows with its IBIT ETF, which is increasingly attracting institutions’ attention as a key development showing its success. 

Many fund managers have flocked to invest in BlackRock’s ETF, signaling a growing interest in digital assets among traditional financial institutions. 

Bloomberg ETF expert Eric Balchunas provides insight into the emerging trends, highlighting the current state of ownership and the potential for further growth.

According to Eric Balchunas, about 30 fund managers, mainly funds and consultants, have already invested in IBIT. While this currently represents only 0.2% of the outstanding shares, Balchunas believes this is just the “tip of the iceberg,” indicating the potential for broader adoption and increased ownership.

Balchunas’ analysis further reveals an intriguing trend in the form of “nibbling” among investors. The small percentage of portfolio numbers associated with the holdings of the IBIT ETF indicates a cautious but persistent interest among institutional investors. 

This suggests a gradual accumulation of shares as fund managers cautiously embrace exposure to Bitcoin through BlackRock’s offering. 

While BlackRock currently leads the Bitcoin ETF race, Fidelity’s FBTC ETF emerges as the runner-up. Balchunas reports that Fidelity’s offering has attracted 11 investors, representing a comparable 0.2% of shares outstanding. 

Since Friday, most Bitcoin ETFs in the US market have seen zero inflows, which has recently caught the attention of ETF experts who are shedding light on the intricacies of ETF flows. James Seyffart, an ETF expert, provides insight into the dynamics of flows within the Bitcoin ETF landscape. 

With nearly 3,500 ETFs in the United States, Seyffart emphasizes the normalcy of ETFs experiencing zero flows on any given day. He also delves into the concept of creation units. He explains the conditions under which shares are created or redeemed, highlighting the importance of supply and demand dynamics in driving ETF flows.  

Seyffart explains the concept of creation units, blocks of shares in which ETF shares are created and redeemed. Each ETF can have a different size creation unit, and in the case of spot Bitcoin ETFs, creation units range from 5,000 to 50,000 shares. 

It clarifies that shares are created or redeemed when there is a significant mismatch between supply and demand that exceeds the threshold of one creation unit. This mismatch must also justify access to the underlying market and be greater than the size of a creation unit.

In the ETF market, market makers are crucial in facilitating trading and managing flows. Seyffart explains that market makers trade shares similar to stocks when minor supply/demand mismatches occur. 

However, Seyffart notes that for market makers to engage with Authorized Participants (APs) and the underlying market, a one-sided mismatch greater than one creation unit in either direction is required. This ensures that the cost of creating or redeeming shares is lower than that of hedging and making markets using traditional methods.

It is worth noting that on Monday, BlackRock was the only fund with inflows since Friday. Specifically, the IBIT Bitcoin ETF recorded net inflows of $73.4 million on April 15, following a decrease from $111.1 million on Friday. 

In contrast, the eight other ETFs, excluding Grayscale’s GBTC, reported zero flows over the past two days, according to SoSo Value data.  

Currently, BTC is trading at $61,800, down over 4% in the last 24 hours and 10% in the last seven days.

Featured image from Shutterstock, chart from TradingView.com

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