January 22, 2024

Rising Outflows from European Bitcoin ETPs as U.S. ETFs Gain Traction

European bitcoin exchange-traded products (ETPs) outflows are on the rise following the introduction of spot BTC ETFs in the United States, as highlighted by an analyst.

The outflows from European bitcoin exchange-traded products (ETPs) have surged in the wake of the recent launch of spot BTC ETFs in the United States, according to insights from CoinShares Research Associate Luke Nolan.

Nolan emphasized that this market shift signifies a notable trend, indicating that institutional traders in the U.S. are likely reshaping their investment strategies towards the recently approved spot bitcoin ETFs.

"There has been a significant outflow from European bitcoin ETPs. Prior to the approval of multiple spot bitcoin ETFs, many U.S. institutions utilized European ETPs for nearly risk-free basis trades. However, with the recent approval of the new U.S. products, these institutions may find it more cost-effective or convenient to execute the same basis trades domestically."

According to Nolan, these basis trades provide a relatively risk-free avenue for U.S. institutional investors.

"Investors in the U.S. were shorting bitcoin futures but simultaneously buying the underlying asset via European ETPs, ensuring they can close the contract and profit from the basis difference, which in this case is the premium above the underlying asset price that the futures price holds. However, they can now do the same domestically with spot bitcoin ETFs in a more convenient way."

In the context of futures trading, the basis represents the difference between the cash or spot price of an asset and the futures price for a specific contract.

BitMEX Research data reveals that the four largest European bitcoin ETPs have witnessed substantial outflows since the debut of spot bitcoin ETFs last week.

A noticeable increase in outflows from Canadian bitcoin ETPs has also been observed. Nolan further noted:

"In regards to Canadian bitcoin ETPs, it looks like U.S. investors who had ways to invest in Canadian ETPs are also switching to invest in the new U.S. funds."

ETF vs ETP distinction

It's crucial to note that 'ETF' stands for Exchange Traded Fund. In the United States, 'ETF' has become the default term for all exchange-traded products that aim to replicate the performance of an underlying asset or benchmark.

However, in Europe, due to specific fund regulations, the term 'ETF' cannot be used for single assets like bitcoin, gold, or smaller baskets of assets. This regulatory distinction means that when European investors search for a 'crypto ETF', they should be searching for a 'crypto ETP' instead.

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