CoVenture Research: Bitcoin ETFs

Does an SEC-approved Bitcoin ETF matter?

Abstract: We examine the degree to which an SEC-approved Bitcoin ETF can affect short and medium-term bitcoin prices. Starting with an analysis of historic bitcoin adoption, we build on Yale economists Aleh Tsyvinski and Yukun Liu’s 2018 seminal crypto assets paper, by analyzing key predictive factors of crypto-asset returns like investor attention, momentum, and context surrounding past Bitcoin ETF decision announcements to construct a heuristic view of Bitcoin’s narrative proxied by gold. We present the bull case and bear case for a Bitcoin ETF’s impact on Bitcoin price.

We conclude that the one week price effect of Bitcoin ETF decisions is statistically insignificant, however in the medium term capital inflows can have a significant impact on prices.

We believe that an SEC-approved Bitcoin ETF can spark the next wave of adoption. In Figure 1 below, we have identified 5 key moments that initiated new user adoption (proxied by transaction volume and active addresses). In the case of Bitcoin, adoption started with cypherpunks and grew as bitcoin became the preferred method of payment for nefarious activities. As critical trading infrastructure emerged, early technologists and traders began speculating and subsequently, transaction volume picked up. In the later wave of 2017 and early 2018, adoption spiked amongst the “early majority.”

Figure 1: Bitcoin Transaction Volume and Active Addresses | Source: CoinMetrics

The bull case for an SEC-approved Bitcoin ETF

The Bitcoin vs gold comparison is a well trodden narrative in terms of their slow shifts from a medium of exchange to a store of value. Both gold and “digital gold” are potential hedges against geopolitical turmoil and currency debasement and historically have faced associated investor hurdles.

“Before the first gold ETF, investors could not invest in gold easily”, says Will Rhind, Founder of GraniteShares. They could buy coins or bars, but due to the costs of storage and acquisition, “it was really a market for specialists,” and investing in gold was “not at all liquid, transparent or efficient.”

There is a case to be made that if a Bitcoin ETF can alleviate the same issues in Bitcoin that a gold ETF solved for gold, Bitcoin’s rise can mimic gold’s price increase post-ETF.

According to a study by personal finance site, 5% of Americans own cryptocurrencies and of those who don’t, 27% cite “risks being too high” as their primary reason. An important risk that an ETF abstract is tax reporting. Instead of opening up a separate exchange account and thinking about the various crypto to crypto tax implications, people can trade an ETF and experience the economics of crypto without the overhang of a complex tax burden.

We heuristically looked at two historically important events: the introduction of a Gold Futures contract and a Gold ETF.

Figure 2: Introduction of Gold Futures on Gold Prices | Source: ICE LMBA Archives

While many external factors affect prices, the introduction of Gold Futures (Figure 2) is associated with a massive price run up followed by a 50% drawdown in the following year similar to Bitcoin’s meteoric rise leading up to the rollout of futures contract and 50% cool down thereafter.

Figure 3: Gold ETF AUM & Gold USD Price | Source: World Gold Council

The introduction of an American Gold ETF in 2004 (GLD) unlocked new capital inflows ($1.56 bn) and within a year of inception, aggregate North American AUM grew to $5.3 bn. In the following three years since GLD inception, prices rose 17%, 23%, and 31 %, respectively. While this chart does little to prove the direct price correlation of a potential Bitcoin ETF, we wanted to see how unlocked capital can affect prices. In the next segment, we will attempt to compare GLD capital inflows to crypto capital inflows.

How does half a billion affect the crypto ecosystem?

Between December 2017 and February 2018, Mt. Gox bankruptcy trustee Nobuaki Kobayashi confirmed in a legal document that he had been offloading almost half a billion dollars worth of bitcoins to begin civil rehabilitation proceedings regarding the Mt. Gox hack. During that time, many astute investors and crypto-enthusiasts have tracked every time their wallets moved into an exchange wallet. In the days or week following the movement, the market had to absorb these supply shocks along with insiders who readjusted their positions in anticipation of a selloff. Although we don’t have historical data on the direct effect of significant asset inflow, we have taken the significant Mt. Gox asset outflow (and subsequent speculative momentum) and inverted their statistical correlation.

Figure 4: BTC/USD Mt.Gox Selloff Chart, Weighted Price Change Chart | Matt Odell Twitter, CV Research

Measuring FUD and FOMO

In Figure 5, We took the total value of assets moved into exchange wallets and proxied their price effect by a one-week price difference. We took into account the size of the market cap by assigning a weight based on the relative value divided by the total amount sold. Our assumption is that the price effect of a large capital outflow is inversely correlated with the price effect of a large capital outflow. Crypto-Investors have frequently named these phenomenon “FUD” or Fear, Uncertainty, Doubt and “FOMO” or Fear of Missing Out.

Result: We found that for every $1 added/subtracted in Bitcoin capital flows there is an associating $11.37 increase/decrease in Bitcoin market cap.

Figure 5: 11.37% Multiplier Table


At the time of editing this research piece, Bitcoin suffered an irregular price drop. Reports came out that an $800 M wallet (rumored to be related to the US Gov/Silk Road debacle) that hasn’t been moved in 4 years split into sub-wallets with 11K BTC going into Bitfinex and Binance. Our 11.37% multiplier estimate predicted $9 Billion lost from market cap. Markets took a chilling nose dive, roughly $7 Billion was wiped out.

Figure 6: BTC/USD Chart | Source:


Regarding the bull case of an SEC-approved Bitcoin ETF, we think this can be a tremendous positive signal for medium-term prices and adoption. We begin with comparing Bitcoin and Gold’s narrative and pre-ETF risks, then constructing a method of measuring capital inflows using data points of massive sell-offs. We conclude that for every $1 added toward Bitcoin, there is $ 11.37 added in Bitcoin market cap.

In the next article, we will present the bear case of an SEC-approved Bitcoin ETF. It relies heavily on statistical data compiled by Yale economists Aleh Tsyvinski and Yukun Liu in relation to crypto-asset price movements. Stay tuned and feel free to give feedback or ask any questions!


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