Bitcoin ETP Series – Part 1
From Wall Street Milestone to the Dominant Force Driving BTC Performance

Global bitcoin ETPs have absorbed a significant amount of bitcoins since inception

A Brief History of Bitcoin ETPs

The journey toward a US-listed spot Bitcoin ETF has been one of the most protracted and closely followed developments in financial markets. It reflects the gradual institutionalization of Bitcoin as an asset class, and the parallel evolution of regulatory attitudes toward crypto-related products.

The first serious attempt to launch such a vehicle dates back to 2013, when Cameron and Tyler Winklevoss filed for the Winklevoss Bitcoin Trust with the SEC. At the time, the idea of a regulated, exchange-traded vehicle providing direct exposure to Bitcoin was revolutionary. Yet, the proposal faced repeated delays and was ultimately rejected in 2017, with the SEC citing concerns over market manipulation and the lack of robust surveillance mechanisms in underlying spot markets.

In the absence of a spot ETF, Grayscale’s Bitcoin Trust (GBTC), launched in 2013, emerged as the de facto institutional access point to Bitcoin. Structured as a closed-end trust rather than an ETF, GBTC allowed accredited investors to gain regulated exposure to Bitcoin, but its lack of a redemption mechanism resulted in persistent premiums and discounts to net asset value. At its peak, GBTC traded at a 40% premium; later, as demand waned, it swung to a deep discount - an inefficiency that underscored the structural shortcomings of the trust format.

Meanwhile, European issuers launched their first 100% physically-backed Bitcoin ETPs on the old continent in 2019 in Switzerland and 2020 in Germany (by Bitwise), already allowing both retail and institutional investors fully regulated access to bitcoin for the first time.

In contrast, progress toward ETFs in the US was rather incremental. In 2021, the SEC approved the first US Bitcoin futures ETFs under the 1940 Act, beginning with the ProShares Bitcoin Strategy ETF (BITO). These products demonstrated clear investor demand, but their reliance on CME futures contracts created roll costs and basis risk, preventing them from serving as a true proxy for spot exposure.

After years of resistance, the turning point came in 2023 when a federal court ruled that the SEC had acted arbitrarily in rejecting Grayscale’s application to convert GBTC into a spot ETF, given its earlier approval of futures-based ETFs. This decision, combined with a wave of new applications led by BlackRock, Bitwise and others, catalysed the SEC’s eventual approval. On January 10, 2024, the SEC simultaneously approved 11 spot Bitcoin ETFs, marking a historic regulatory milestone.

The subsequent launch was nothing short of extraordinary. Collectively, these funds amassed billions in inflows within days, setting records as the most successful ETF launch in history. BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Fund (FBTC) quickly became leaders, but other funds also attracted billions.  The sheer scale of demand underscored Bitcoin’s transition into the mainstream of capital markets.

How important are Bitcoin ETPs really?

The role of exchange-traded products (ETPs) in the Bitcoin market has grown substantially in recent years . The flow activity into and out of these vehicles is no longer a marginal phenomenon but a central element of Bitcoin’s market microstructure.

Notably, there has been a marked rise in the importance of ETP flows for Bitcoin’s price performance. Since early 2024 and the US ETP approvals, daily net flows have shown a significantly stronger correlation with subsequent returns, underscoring the extent to which institutionalized demand via ETFs now shapes price discovery. Statistically, the explanatory power (R²) of flows with respect to Bitcoin’s short-term performance has risen materially, highlighting their growing relevance as a predictive variable.

Bitcoin's Performance Sensitivity to ETP Flows has increased over time

[Of note: Prior to its conversion to an ETP structure in January 2024, inflows and outflows to GBTC were reported with a lag, which may contribute to the low R2 of the pre-2024 figures. Nonetheless, the sharp uptick in R2 after 2024 is significant.]

This structural shift is also evident in trading activity. Volumes in listed Bitcoin ETPs have increased steadily, reaching levels that are meaningful in comparison to on-chain transaction activity.

Bitcoin ETPs account for an increasing share of global transfer volume

Interestingly, this shift has had positive second-order effects on the Bitcoin network itself. By diverting trading activity into regulated, off-chain vehicles, ETPs have helped reduce congestion on the base layer and contributed to a more stable fee environment.

In this sense, ETPs can be viewed as a quasi–Layer 2 solution: they internalize transaction demand while still anchoring exposure to the underlying asset.

ETFs function much like so-called “warehouse deposit receipts” once did for physical commodities such as gold: both transform an illiquid, cumbersome asset into a standardized, easily tradable claim.

By abstracting away storage and settlement frictions, they dramatically enhance market liquidity and transactional efficiency, allowing investors to gain exposure without moving the underlying commodity. In effect, ETFs have become the modern "receipts," scaling this efficiency globally.

Another important dynamic is the rising correlation between ETP flows and spot market volume deltas. Put simply, when ETFs absorb or release liquidity, it increasingly sets the tone for order flow across major exchanges. This feedback loop further reinforces the centrality of ETFs in market functioning.

Bitcoin ETP flows are increasingly influencing spot exchange markets

The supply–demand imbalance has been particularly noteworthy in 2025. ETP inflows have consistently exceeded the new supply of Bitcoin entering circulation through mining, a dynamic that is clearly visible in flow-to-supply comparisons. This imbalance has provided a structural tailwind for prices, especially in the wake of the latest halving, when new issuance declined further.

Net inflows into US spot Bitcoin ETFs have outweighed new supply in 2025

Taken together, these observations make it clear that Bitcoin ETPs have become far more than an investor convenience. They are now a crucial determinant of market liquidity, performance, and the evolution of Bitcoin’s broader ecosystem.

In fact, the share of performance explained by bitcoin ETP flows over the past 26 weeks (6 months) has recently reached an all-time high!

Bitcoin: The importance of ETP flows recently increased significantly

In other words, net flows into global bitcoin ETPs have been the single most important determinant for bitcoin’s performance for much of 2025. We think that this importance will only grow with an increasing share of supply held in bitcoin ETPs as institutional adoption continues to grow.

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