Yes, Institutions Are Still Buying Bitcoin

Despite falling prices, institutional investors significantly increased their allocation to bitcoin ETFs in Q2 2024, according to the latest 13F filings.

The biggest question in crypto right now is whether institutions and professional investors will allocate to crypto in a major way.

This question matters more than the outcome of the Presidential election; more than the outlook for legislation in Congress; more than technological developments in the blockchain space.

The reason is simple: math.

Most investable assets are primarily owned by professionals. For instance, studies suggest that institutions control roughly 80% of the US stock market. By comparison, institutions own relatively little crypto. The most aggressive estimates I’ve seen suggest they may own 10% of all bitcoin.

To get that number up to just 50% of the market, professional investors would need to buy ~$500 billion of bitcoin. Needless to say, that would have an enormous impact on price.

So … are they buying?

Thanks to the advent of bitcoin ETFs—and the SEC’s requirement that institutions disclose their ETF holdings on a quarterly basis, using Form 13F—we can now answer that question. The latest batch of 13F filings covering Q2 2024 hit the street last week, and what they show is interesting.

Here are three key takeaways.

Key Finding #1: Yes, Institutions Continue To Buy Bitcoin ETFs

The first finding is the most important: Institutions continued to buy bitcoin ETFs in Q2.

This was not guaranteed. Bitcoin’s price fell 12% in Q2 2024 and many wondered if that would spook institutions out of the market. The answer was a resounding “no.”

The total number of institutional investors holding bitcoin ETFs rose 14% quarter-over-quarter, from 965 to 1,100. Their share of the total assets under management (AUM) of bitcoin ETFs rose as well, from 18.74% to 21.15%. All together, institutional investors closed the quarter holding $11.0 billion in bitcoin ETFs.

There was some healthy churn in these flows. In Q2, 112 investors who held bitcoin ETFs at the end of Q1 sold out of the asset, while 247 new firms made their first investment. All told, bitcoin ETFs added 135 new firms.

In my view, this is a great sign. If institutions will buy bitcoin when prices are volatile, imagine what could happen in a bull market.

Key Finding #2: The Pace of Institutional Adoption Is Historic

Critics love to point out that bitcoin ETFs are predominantly owned by retail investors, who hold ~79% of the AUM of bitcoin ETFs. They use this fact to suggest that institutional demand is anemic.

That’s simply untrue. Bitcoin ETFs are being adopted by institutions at the fastest rate of any ETF in history.

Using a list from Bloomberg’s Eric Balchunas, I examined the institutional ownership of the 10 fastest-growing new ETFs of all time, as ranked by AUM after one month on the market. Specifically, I looked at the number of institutional holders and total institutional AUM for those ETFs after two quarters on the market, to compare to the current state of bitcoin ETF ownership.

Fastest-Growing Non-Bitcoin ETFs: Institutional Adoption After Two Quarters on the Market

Source: Bitwise Asset Management with data from WhaleWisdom and Eric Balchunas. Data as of June 30, 2024.

(1) Rankings for non-bitcoin ETFs based on AUM after one month on the market.

(2) Note: QQQ launched in March 1999. There is no 13-F data available for this fund until Q1 2021, so these numbers reflect ownership after nine quarters on the market.

It’s not even close. The only ETF that’s at all comparable is Invesco’s QQQ, but that is an apples-to-oranges comparison. QQQ launched in March 1999, but I cannot locate any historical 13F data for the fund until Q1 2001. In other words, the numbers in the chart for QQQ represent the institutional adoption of that fund nine quarters into its growth. And even so, bitcoin ETFs have 3x the number of buyers!

Some might argue that comparing bitcoin ETFs in aggregate to individual ETFs is unfair. But even if you looked at individual bitcoin ETFs, they would dominate the chart. For instance, Bitwise’s bitcoin ETF—which ranked fourth among bitcoin ETFs by AUM at the end of Q2—had more institutional holders (139) than SPDR’s juggernaut GLD (118) at this stage of its existence.

ETFs are unique investment products in that they can be held by both institutional investors and retail investors alike. We shouldn’t let the historic adoption of bitcoin ETFs by retail investors obscure the fact that they are also gaining institutional traction faster than any other ETF in history.

Key Finding #3: Most Institutions Are Just Dipping Their Toes in the Water

One more fact: The median investor that reported holding bitcoin ETFs in Q2 had just 0.47% of their portfolio invested in bitcoin, according to the filings.

I find this number highly encouraging. One trend we’ve noticed at Bitwise after 6+ years of managing crypto exposures for professional investors is that they tend to build their positions over time. Many start with 1% or less of their portfolio, but that number tends to rise to 2.5% or even 5% over time.

I suspect the average holding for institutional investors will be north of 1% within a year, and keep rising from there.

Conclusion: ETFs Are a Multi-Year Story

All in all, I find the Q2 2024 batch of 13F filings highly encouraging. Institutions continued to buy bitcoin ETFs in Q2 despite falling prices. Hundreds of new institutional investors made their first purchase. And bitcoin ETFs are being adopted by institutions faster than any ETF in history.

As the former CEO of ETF.com, I’ve watched ETFs launch for two decades. One thing I know is that most ETFs build over time: Year 1 can be a challenge, but momentum tends to build into Years 2, 3, 4, and 5. I expect the same thing to happen here. After all, major platforms are still just now turning on access to bitcoin ETFs (Morgan Stanley approved them earlier this month). I suspect bitcoin ETF inflows will be bigger in 2025 than in 2024, and bigger in 2026 than in 2025.

The institutions are coming, and they’re coming in size.

Risks and Important Information

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