Did bitcoin ETF frenzy drive the crypto to a record? How the experts see it.

By Isabel Wang

Bitcoin ETFs see tremendous inflows, but that may not be the main reason for surging crypto prices.

Hello! This is MarketWatch reporter Isabel Wang bringing you this week's ETF Wrap. In this week's edition, we look at spot bitcoin ETFs, and the role these first-of-a-kind funds are playing in the rally by the world's oldest and the largest cryptocurrency over the past two months.

Please send tips or feedback to isabel.wang@marketwatch.com or to christine.idzelis@marketwatch.com. You can also follow me on X at @Isabelxwang and Christine at @CIdzelis.

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Investors are back on the bitcoin (BTCUSD) roller coaster again, with the world's largest cryptocurrency riding its ups and downs in just the two months since the long-awaited arrival of spot bitcoin ETFs.

Bitcoin soared to a fresh record on Tuesday, briefly topping the previous all-time peak of around $69,000 set in November 2021, before reversing course and recently trading at $67,315 on Thursday afternoon, according to FactSet data.

Bitcoin's momentum was fueled in part by excitement over the debut of spot bitcoin ETFs earlier this year after a begrudged blessing by the U.S. Securities and Exchange Commission. But concerns remain over whether the initial surge of demand for the funds is robust enough to keep bitcoin afloat, according to ETF strategists.

See: BlackRock, Fidelity together rake in more spot bitcoin ETF inflows than Grayscale is losing

A net $8.5 billion has been poured into a group of 11 U.S.-listed exchange-traded funds tracking current prices of bitcoin since they debuted on Jan. 11. This past week, the BlackRock's iShares Bitcoin Trust IBIT hauled in a total of $2.6 billion in net inflows in the week ending Wednesday. The fund, with over $11 billion of assets under management, saw the second-highest weekly inflows among nearly 900 ETFs that MarketWatch tracked over the same period, according to FactSet data.

To be sure, the pent-up demand for spot bitcoin ETFs has brought tremendous interest to the world's largest cryptocurrency after an excruciatingly subdued year, but it's not the only reason driving the bitcoin rally, said Simeon Hyman, global investment strategist at ProShares.

The demand for the funds is simply a case of the "tail wagging the dog," he told MarketWatch via phone on Thursday.

Indeed, the launch of spot bitcoin ETFs sparked a rush by a wave of investors who were previously sitting on the sidelines, which suggests that bitcoin's advance might be a result of attracting investors who had previously kept crypto at arm's length.

However, only about 4% of the global circulating supply of bitcoin was tied up in these U.S.-listed spot bitcoin ETFs as of Friday, according to the Wall Street Journal, citing data from Galaxy Digital, a crypto asset manager.

"It's [bitcoins owned by ETFs] still a pretty small slice of the overall [bitcoin] market," said Ryan Jackson, manager research analyst at Morningstar Research Services, adding that ETF investors and bitcoin investors do not share the same population, which means their trading activities do not move in tandem.

See: Bitcoin's fair value is $35,000 - but who's counting?

Instead, Jackson said the approval of spot bitcoin ETFs was simply "a stamp of legitimacy" for this notoriously-volatile type of crypto asset, which always sees sudden price changes that could add or wipe out millions of dollars of values in minutes. That assurance from regulators may offer some degree of certainty and encourage investors to purchase bitcoin directly from exchanges, instead of investing in ETFs, he told MarketWatch in a phone interview on Thursday.

Meanwhile, the bitcoin rally coincided with the risk-on mode of the U.S. financial market, as megacap technology stocks continued to propel the S&P 500 SPX and the Nasdaq Composite COMP to record highs, fueled by investor enthusiasm for artificial intelligence, hopes of a soft landing and the expectation that the Federal Reserve will cut interest rates in mid-2024.

On top of that, optimism around the upcoming "halving" event, which is expected to happen in April, has also boosted bitcoin prices, Jackson said. Halving is a mechanism written in the blockchain's algorithm to control the supply of bitcoin. MarketWatch has reported that history has shown the cryptocurrency usually sees significant price appreciation in the wake of halvings.

More on bitcoin halvings: Bitcoin is halving again in April. Here's why it's different this time.

"I'm skeptical there's enough demand for spot bitcoin ETFs specifically to drive a [bitcoin] rally," Jackson said. The debut of the bitcoin ETF simply made "more people sleep better at night" knowing that bitcoin is "good enough for ETFs and for the SEC, and then you layer that on top of what risky investments do in the market," which together might be a tailwind for bitcoin, he said.

As usual, here's your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good...

   Top performers                                                                                                                                                                     % Performance 
   Amplify Junior Silver Miners ETF                                                                                                                                                   11.6 
   VanEck Junior Gold Miners ETF                                                                                                                                                      11.4 
   VanEck Gold Miners ETF                                                                                                                                                             10.6 
   Bitwise Bitcoin ETF Trust                                                                                                                                                          8.2 
   iShares Bitcoin Trust Registered                                                                                                                                                   8.1 
   Source: FactSet data through Wednesday, March 6. Start date Feb. 29. Excludes ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe-traded ETFs of $500 million or greater. 

...and the bad

   Bottom performers                          %Performance 
   YieldMax TSLA Option Income Strategy ETF   -15.1 
   AdvisorShares Pure US Cannabis ETF         -7.4 
   ARK Genomic Revolution ETF                 -4.5 
   iShares MSCI Chile ETF                     -3.6 
   WisdomTree Cloud Computing Fund            -3.4 
   Source: FactSet 

New ETFs

Direxion Thursday announced the launch of the Direxion Daily Concentrated Qs Bull 2X Shares QQQU and the Direxion Daily Concentrated Qs Bear 1X Shares QQQD, which seek to achieve 200% and 100% of the inverse of the daily performance of the Indxx Front of the Q Index, respectively. The index is designed to track the performance of the seven largest Nasdaq 100-listed NDX companies.Nuveen Wednesday announced the launch of three actively-managed fixed income ETFs, Nuveen Core Plus Bond ETF NCPB, Nuveen Preferred and Income ETF NPFI and Nuveen Ultra Short Income ETF NUSB, as well as an active equity fund, the Nuveen Sustainable Core ETF NSCR.Simplify Asset Management on Tuesday launched the firm's first actively-managed international ETF, Simplify Tara India Opportunities ETF IOPP. Summit Global Investments Monday announced the launch of SGI Enhanced Global Income ETF GINX and SGI Enhanced Core ETF USDX. GINX seeks to generate a return and income by actively investing in global companies that offer attractive dividend income, while USDX utilizes a diversified portfolio of higher-yielding, high quality short-term money market instruments, the company said in a press release.

Weekly ETF Reads

BlackRock, Fidelity together rake in more spot bitcoin ETF inflows than Grayscale is losing (MarketWatch)For the 14th year in a row, the S&P 500 did better than the majority of actively managed U.S. large-cap stock funds (MarketWatch) Grayscale's bitcoin ETF sees 'bearish engulfing' pattern after being its most overbought in years (MarketWatch) 'My Mom Texted Me': Bitcoin's Comeback Energizes Long-Time Proponents (Bloomberg) Bitcoin Volatility Picks Up After Token's Run to All-Time High (Bloomberg) ETF industry observers advise caution when adjusting portfolios (Financial Times)

-Isabel Wang

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03-07-24 1736ET

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