ETF Flows Shift Crypto’s Trading Patterns

This year’s ETF approvals in the US are starting to have a meaningful impact in crypto markets, as changes in daily trading patterns and exchange preferences suggest that institutional investors are wielding increasing influence in markets.

Bitcoin ETFs registered positive inflows in May reversing the trend from the previous month and making up 26% and 56% of Blackrock’s and Vanguard’s new funds so far this year, according to Bloomberg ETF analyst Eric Balchunas. Last month, 13F filings from the funds revealed that as of March more than 400 institutional investors were exposed to these vehicles with some heavy-weight trad-fi names such as hedge fund Millennium included. The SEC’s surprise decision to pave the way to Ether ETFs has further boosted the Wall Street takeover of crypto.

These changes are showing up in daily trading: data company Kaiko notes that volumes since the launch have become more concentrated in US hours with noticeable volume spikes around when equity markets open (14H UTC) and close (20H UTC).

The portion of deals done when stock markets close in the US has nearly doubled since 2021, rising to 7.2% this year from 4.9% during Bitcoin’s last bull run three years ago, Kaiko says, adding that the increase comes at the expense of Hong Kong and Sydney, where activity around the end of the day has declined.

“This trend is likely linked to Bitcoin ETFs, which calculate their net asset value (NAV) against dedicated benchmarks at the US close each weekday, encouraging arbitrage and price discovery,” Kaiko researchers note.

The changes are also showing up on exchanges. CME Group’s market share in crypto derivatives hit a three-year high and the exchange notched up a new record for Ether options in May, according to CCData, after the SEC paved the way for the launch of ETH ETFs in a surprise decision last month.

The Chicago-based exchange had a 3.11% share of the digital assets derivatives market and it saw a 37.5% increase in ether futures volumes, both hitting levels last seen in 2021. The exchange has also registered a significant jump in options trading volumes in Ether, which rose 115% in May to a new all-time high at just below $1 billion. Bitcoin futures volumes dropped off to $86.8 billion. “This significant increase underscores the growing institutional interest in Ethereum, particularly after the recent approval of spot Ethereum ETFs,” CCData analysts say.

The increase in activity from professional investors is also changing up the hierarchy of fiat currencies that are used in the space. The dollar is used as the fiat currency of choice for 50% of crypto transactions, up from 30% in September, Kaiko highlights. The research company also noted that the Korean won lost steam in the second quarter in terms of volumes after briefly surpassing the dollar as the dominant currency in the first three months of the year, but the euro has fared less well, with the Turkish lira overtaking it as the third most used fiat unit.

Researchers have warned, however, that some of the changes, especially around intraday trading patterns, could make markets unstable in time of uncertainty. “This concentration of liquidity in a short time frame could potentially increase intra-day volatility, especially during periods of market stress,” Kaiko’s researchers warn.