Galaxy Digital analysts forecast inflows into the spot Bitcoin ETF

In the first year after launch, inflows into the spot Bitcoin-ETF will be $14 billion, in the second year $27 billion, and in the third year $39 billion. These estimates were provided by analysts Galaxy Digital.

According to their calculations, as of September 30, the Bitcoin products held 841,637 BTC (~$21.69 billion).

Experts explained that a spot gold-backed exchange-traded fund offers the following advantages over current alternatives:

• greater efficiency due to lower fees, liquidity and price tracking;
• convenience — access through a broader range of channels and platforms;
• regulatory compliance, which could lead to lower volatility.

According to the specialists, the spot Bitcoin ETF could accelerate the asset’s adoption by making it more accessible through:

• broader accessibility for individuals across all wealth brackets;
• official recognition by regulators and key players in the financial services industry.

Market-size assessment

As of October 2023, assets available to broker-dealers stood at $27.1 trillion, banks at $11.0 trillion, and RIAs at $9.3 trillion. Total — $48.3 trillion.

Analysts explained that they did not include in the TAM figure the family-office industry ($2 trillion), as well as the figures of overseas firms.

Experts acknowledged that the access-expansion cycle for the instrument will take several years as it is added to the product line.

Potentially first in this regard will be RIA. Other categories will likely need to meet criteria such as at least one year of market history and AUM above $1 billion.

Analysts forecast that the RIA channel will reach 50% capacity by the end of the first year after launch and rise to 100% by the end of the third year. For broker-dealers and banks, they allowed slower growth at 25% and 75% respectively.

Based on these calculations, they valued the US Bitcoin-ETF TAM at about $14 trillion in the first year, $26 trillion in the second year, and $39 trillion in the third.

Based on the assumption that 10% of the total available assets in each wealth channel are invested in the product, with an average allocation of 1%, specialists projected inflows to the Bitcoin ETF of $14 billion, $27 billion and $39 billion in the first, second and third year after registration.

They described these estimates as conservative, though acknowledging that a negative crypto-market environment could lead to lower actual figures.

Comparison with gold

According to the World Gold Council (WGC), as of September 30, assets under management of gold ETFs stood at about 3,282 tonnes (~$197.8 billion), or about 1.7% of the gold supply. On the same date, Bitcoin products held 841,637 BTC (~$21.7 billion), or 4.3% of the total issued supply.

Given that gold’s market capitalisation is about 24 times higher, and the supply of investment instruments is about 36% smaller than Bitcoin’s, analysts estimated that inflows in dollar terms would have 8.8 times greater impact on the digital-gold market than on the precious-metals market.

Using the earlier estimate of inflows for the first year at $14.4 billion (~$1.2 billion per month or ~$10.5 billion on a revised basis using the 8.8x multiplier) and the historical relationship between flows into “gold” ETFs and asset-price changes, the experts estimated +6.2% impact on Bitcoin in the first month.

Keeping inflows steady but monthly adjusting the multiplier downward to reflect the rise in the price of the first cryptocurrency, analysts modelled a gradual decline in the monthly returns of digital gold from +6.2% in the first month to +3.7% by the last month of the first year.

Over the year after the ETF’s approval, the projected growth could reach 74% (assuming a starting price of $26,920 as of Sept. 30).

Long-term prospects

Analysts emphasised that second-order effects of the product’s approval will have a larger impact on Bitcoin demand. In particular, the introduction of similar ETFs in other jurisdictions and inclusion of digital gold in various asset-management strategies are likely.

In the long run, TAM could extend to all assets managed by third parties (~$126 trillion, per McKinsey), and even more broadly to global wealth ($454 trillion, per UBS).

Experts noted the prevailing view that as Bitcoin monetises, it will systematically reduce the monetary premium applied to other assets such as real estate or precious metals, significantly expanding its prospects.

Based on these assumptions, Galaxy Digital estimated additional inflows into Bitcoin-based investment products ranging from roughly $126 billion to $454 billion in the long term.

As reported by Cointelegraph on X on Oct. 16, the approval of BlackRock’s spot Bitcoin ETF briefly sent the price of the first cryptocurrency to $30 000, before it fell just as quickly after reports of a fake.

On Oct. 24, Bitcoin broke through the $35 000 level amid rising confidence in the product’s imminent registration.

Earlier, Matrixport analysts forecast growth in digital gold up to $42 000-56 000 as a result of the instrument’s approval. CryptoQuant reported values in $50 000-73 000.