The demand for U.S.-listed spot bitcoin ETFs has been soaring, raising concerns about potential supply shortages. With the rise in demand, questions arise about whether these products can adapt quickly enough to avoid structural issues post-halving.
The rapid growth of these ETFs, led by the $17.3 billion iShares Bitcoin Trust (IBIT), has significantly impacted the market for bitcoin. This surge in demand mirrors the early days of the SPDR Gold Trust (GLD) in 2004, which preceded a 254% surge in gold prices over seven years.
The influx of over $30 billion into U.S. spot bitcoin ETFs in their first three months has been a major driver of bitcoin’s rally from $45,000 to over $73,000 in March. However, it’s crucial to distinguish correlation from causation.
According to James Butterfill, head of research at CoinShares, up to 4,500 bitcoins are being removed from circulation by spot bitcoin ETFs daily, while only 900 new coins are mined daily due to reward caps.
Circulating Bitcoins
While these numbers may seem insignificant compared to the total supply of bitcoins, which is around 19.6 million, it’s crucial to note that about 70% of bitcoins have not been traded in over a year. As of early March, spot bitcoin ETFs had already claimed 4% of all circulating bitcoins.
This trend has had a tangible impact, with the total supply of bitcoins on exchanges decreasing by 28% between 2020 and February 2024, indicating a significant demand shock.
In addition to direct demand from U.S. spot ETFs, data from CryptoQuant shows that over 90,700 bitcoins were withdrawn from major exchanges in April, reducing the liquid supply of bitcoin as investors moved coins into cold storage amid the ETFs’ arrival.
Stefan Wiederkehr, co-founder of IMP AG, stated that his firm has reduced its bitcoin exposure significantly due to supply-demand concerns caused by the new spot bitcoin ETFs.
The recent halving event, which reduced mining rewards from 6.25 to 3.125 bitcoins per block, has further complicated the supply-demand dynamics. While demand for ETFs has slowed in recent weeks, the halving event could still lead to a tenfold increase in demand over new bitcoin production.
Despite these challenges, the potential structural issues for ETFs may not stem from a general supply-demand mismatch but rather from the ability of key stakeholders like Coinbase to source enough bitcoin to meet demand.
In light of these developments, the focus should shift from the limits of the ETF wrapper to the limits of the assets being wrapped in ETFs.
