A recent report from NYDIG, a leading financial services firm specializing in Bitcoin, has cast doubt on the commonly held belief that high trading volume in new spot Bitcoin Exchange-Traded Funds (ETFs) indicates strong investor buying interest. According to the report by Greg Cipolaro, the global head of research at NYDIG, daily trading volume is not a reliable indicator of daily fund flows.
Misconceptions about trading volume
Cipolaro’s analysis challenges the prevailing notion that high trading volume in ETFs signals significant investor interest. He points to the example of Grayscale’s Bitcoin Trust (GBTC), which has consistently boasted the highest trading volume among the ten Bitcoin ETFs launched on January 11. Despite this, GBTC has experienced a loss of over $7 billion in assets, indicating a lack of correlation between trading volume and inflows.
Instead of relying solely on trading volume, Cipolaro suggests looking at a fund’s turnover ratio, calculated by dividing the dollar trading volume by the fund’s net asset value. This ratio provides insight into the proportion of a fund’s assets traded on any given day and offers a glimpse into investor and trader profiles.
Insights from turnover ratios
The spot Bitcoin ETF group as a whole has seen a turnover ratio of 5.3%, according to Cipolaro’s analysis. Valkyrie (BRRR) and Grayscale’s GBTC have the lowest turnover rates at 2.2% and 2.4%, respectively.
On the other hand, Ark 21 (ARKB) stands out with a high turnover ratio of 11.3%. Notably, WisdomTree’s (BTCW), the smallest of the spot ETFs with just $30 million in assets under management (AUM), experienced a remarkable turnover ratio of 205% during a recent five-day period.
Cipolaro’s findings prompt a reassessment of traditional investment strategies in the Bitcoin market. While high trading volume may attract attention, it does not necessarily translate to sustained inflows or positive returns. Investors and fund managers are urged to consider alternative metrics like turnover ratio to better understand market dynamics and investor behavior.
Implications for Bitcoin ETF investors
For investors in Bitcoin ETFs, understanding the nuances of trading volume and turnover ratio is crucial for making informed decisions. While high trading volume may initially seem appealing, it is essential to delve deeper into the underlying factors driving market activity.
Investors can gain valuable insights into ETFs’ liquidity and trading behavior by focusing on metrics like turnover ratio, helping them navigate the volatile cryptocurrency market more effectively.
