Key Insights:
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Onchain data indicates that retail investors appear inactive, yet ETF assets under management (AUM) are on the rise.
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Retail investors dominate the ownership of spot Bitcoin ETF shares, directly or via advisors and hedge funds.
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Although retail demand may seem subdued, it remains alive, particularly outside the U.S., where self-custody is crucial.
Many believe that Bitcoin (BTC) can’t experience further growth due to a perceived decrease in retail investor demand. Onchain metrics suggest this may be true, showing a decline in small wallet transactions to a multi-year low. However, this may not tell the whole story.
It’s possible that retail engagement has shifted to alternative channels, with a significant portion of demand now navigating through traditional finance systems such as spot ETFs, pension funds, and brokerage accounts. Reclassifying ETFs as retail assets could alter the market dynamics for Bitcoin.
Who Purchases Spot Bitcoin ETFs?
Since the introduction of spot Bitcoin ETFs in the U.S. in January 2024, a new demographic of clients is gaining Bitcoin exposure, often preferring these vehicles due to a lack of confidence in managing self-custody or technical aspects.
Institutions invest in ETFs for their straightforward accounting and regulatory clarity. Investment advisors and hedge funds are major holders of these ETFs, managing Bitcoin investments for both retail and corporate clients, alongside banks and pension funds offering BTC exposure to their customers. Together, ETF holders now possess around $135 billion in Bitcoin.
ETFs as Retail Investments
There’s a tendency to view ETF flows as primarily institutional, contrasting them with the familiar image of individual retail wallets accumulating Bitcoin. This perspective supports the idea that direct retail investment has nearly disappeared.
According to André Dragosch, head of research at Bitwise, retail has been a major distributor of Bitcoin this year. He notes that both public companies and various funds are the main sources of Bitcoin demand. However, he points out that retail interest is significantly represented through ETPs and ETFs, which remain largely retail-oriented. Recent 13F filings in the U.S. reveal about 75% of U.S. spot Bitcoin ETFs are held by retail investors. As such, it may be time to reconsider how onchain data is interpreted; retail clients now prefer keeping their Bitcoin in brokerage accounts instead of self-custodial wallets.
Challenges Facing Bitcoin Prices
Despite the ETF-driven demand, Bitcoin’s price struggles to rise. Data from CryptoQuant shows that while ETF investment inflows remain steady, overall demand has shifted to negative, indicating outflows are outpacing inflows. This suggests that a significant event, such as potential interest rate cuts, could be necessary to revive demand, primarily benefiting institutional stakeholders.
Alexandre Stachtchenko from Paymium recognizes this evolving landscape, asserting that retail will increasingly rely on traditional finance systems for Bitcoin access. However, he emphasizes that direct retail interest isn’t vanishing; it may simply be subdued. Wealthier U.S. investors may lean toward firms like BlackRock for exposure, while retail participants in countries like Nigeria or Argentina will likely continue to buy BTC directly. So, while retail demand may seem quiet, it has not dissipated entirely and could resurface under the right conditions.
This article serves for informational purposes only and should not be construed as legal or investment advice. The opinions expressed are solely those of the author and do not necessarily reflect those of Cointelegraph.
