Markets See Violent Volatility Amid Record Bitcoin ETF Activity

The crypto markets are experiencing extreme volatility, with Bitcoin posting a violent pull-back after rallying to new year-to-date highs.

Bitcoin briefly traded a local high of $63,637 on Feb. 28, coming just 6% shy of its previous all-time high and comprising the only time the leading cryptocurrency has traded above $63,000 excluding October and November of 2021, according to CoinGecko.

However, the markets quickly rejected the new highs, with MacroCRG, an ambassador for Vertex Protocol, flagging that $1.6B worth of open interest was wiped from Bitcoin derivatives in just 15 minutes as the price of BTC topped out. According to CoinGlass, there is now almost $27B worth of open interest in Bitcoin.

BTC is now trading for $62,930 after steadily regaining ground in recent hours, comprising a 22% gain over the past 24 hours and 135% since slumping to a local low of $26,840 in mid-October.

Ether also rallied 18.5% in the last 24 hours, last changing hands for $3,473 — its highest level in almost 23 months. ETH is up 124% since dipping to $1,550 in mid-October, with many prominent analysts tipping that Ether may become the second cryptocurrency offered through a spot exchange-traded fund in the coming months.

Surging Bitcoin ETF demand drives bullish momentum

Bitcoin's stunning market momentum continues to be buoyed by surging activity surrounding the 10 spot Bitcoin ETFs that debuted in January following months of bullish anticipation.

The funds posted their strongest daily volume on record for Feb. 28, with $8B worth of shares traded, according to data compiled by Eric Balchunas, a senior ETF analyst at Bloomberg. The "newborn nine" — the nine funds excluding the Grayscale Bitcoin Trust, which previously traded before converting into an ETF in January — hosted $6B worth of trades, doubling their previous all-time high from Feb. 26.

BlackRock's IBIT ETF accounted for more than half of the volume with $3.34B, followed by Grayscale's GBTC with $1.84B, and Fidelity's FBTC with $1.44B. Bitcoin futures ETFs also drove $2B worth of trades.

Daily flows to Bitcoin ETFs also tagged a new record of $637.4M on Feb. 28, with IBIT taking in $612.1M by itself, followed by FBTC with $245.2M, according to data compiled by Bloomberg analyst, James Seyffart. Outflows from Grayscale’s GBTC jumped 70% over the previous day to $216.4M, with the VanEck Bitcoin Trust also posting an outflow of $3.4M.

Data compiled by HODL15Capital, an investor and analyst, shows that the funds accumulated 10,050 BTC on Feb. 27 — 11 times the rate of new BTC issuance at roughly 900 BTC per day. The ETFs now hold more than 300,000 BTC or approximately 1.5% of Bitcoin’s supply.

“You've got to hand it to the Bitcoiners, they said the banks would eventually be forced to buy their bags,” tweeted Ryan Adams, the co-founder of Bankless. “They were right.”

RIAs cautiously move towards Bitcoin ETF embrace

The frenzy of Bitcoin accumulation from the spot ETFs also comes as U.S.-based Registered Investment Advisors (RIAs) are beginning to offer their clients exposure to the funds.

Last week, Carson Group, a network of RIAs managing $30B in assets, greenlit four spot Bitcoin ETFs for its investors.

A Feb. 27 filing from Morgan Stanley indicates that the major bank’s Europe Opportunity Fund may be preparing to hold spot Bitcoin ETF shares, with the fund previously holding shares in Grayscale’s Bitcoin Trust prior to its ETF conversion. Morgan Stanley also confirmed it was offering wealth management clients exposure to BTC via external crypto funds during its first-quarter earnings call in 2021.

In January, Ric Edelman, founder of Edelman Financial Services, predicted that RIAs will invest $150B into spot Bitcoin ETFs within the next three years. “Our research shows that 77% of independent advisors plan to allocate an average of 2.5% of clients' portfolios to spot bitcoin ETFs," Edelman said.

However, Edelman acknowledged that it will take time for many RIAs to begin allocating assets to Bitcoin ETFs.

“Firms need time to put these new ETFs onto their platform, and compliance departments need to establish policies governing their use," Edelman continued. “Advisors all need training, because most are unfamiliar with blockchain technology, and they don't know how to explain Bitcoin to clients.”