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Monthly Market Review - December 2023

After much hype, 11 Bitcoin Spot ETFs were approved and launched in early January to great fanfare. Over the two days of trading last week, there was over $7.8 billion in trading volume and approximately $800 million in net inflows to these products. This is a bellwether moment for the space as institutional-grade products allow pension funds and other investors who have struggled to access the space until now to invest. Finally, allowing institutions access will increase Bitcoin’s adoption further.

 

It's still very early into their lifecycle, but the ETF launch will have three longer-term implications.

 

Speculators betting on new ETF products

The speculation around when the BTC ETF would launch drove significant trading volume over the last week, and they broke records for the most trades on an ETF launch day. The successful launch has prompted the ETF providers to start planning the launch of other products. Traders are already speculating which asset will be the next to have an ETF approved, driving up the volatility of digital assets other than BTC. The speculation will occur over a multi-year timeline as the planning and approval of each new ETF can take months.

 

Renewed attention

The ETF providers are already advertising their new products to attract retail investors. This effort will increase the attention on the space and increase the participation of retail investors; as investors re-engage in the space, there will be an increase in trading volume. Additionally, some active retail investors will re-engage via digital asset exchanges, further driving retail volume across the broader market.

 

Rising tide

As fresh funds flow in via ETFs, traders will allocate funds into assets further out on the risk curve as they take profits and invest in promising assets that are cheap relative to Bitcoin. This will help lift a wide range of digital assets.

 

These three broader impacts should increase liquidity and volatility in the space, providing us with good trading conditions throughout 2024.


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