Bitcoin ETFs Are Driving Up BTC Scarcity—Here's The Good and Bad News

By Ryan S. Gladwin

Bitcoin ETFs have nearly hit $50 billion assets under management and have tipped the crypto market into an exciting period of growth.

Since the ten new (and one converted) Bitcoin Spot ETFs were approved by the SEC, ETFs have dominated the crypto market. Vetle Lunde, a senior analyst at K33 Research, projected on X that the "newborn nine" will soon overtake the Grayscale Bitcoin Trust (GBTC) in Bitcoin holdings.

A quick note to clarify that the “new nine” refers to the 11 spot Bitcoin ETFs that were approved to trade minus GBTC, which already existed and was converted into an ETF, and Hashdex, which got its application approved but doesn’t currently issue a spot Bitcoin ETF.

Launched in 2013, GBTC is Grayscale's flagship Bitcoin fund and, prior to the SEC approval of spot ETFs, was one of the only ways to invest in BTC through a traditional investment vehicle. The fund has been the world's largest Bitcoin fund for years.

The "newborn nine" tipping this legacy fund shows a clear appetite for traditional crypto investment options.

"For those with exposure to Bitcoin, it has been an absolute riot." Tom McClean, Senior Researcher at Vega Protocol, told Decrypt. "We’re seeing the most exciting market activity ever, and millions of investors are reaping the rewards."

The increased demand for BTC is contributing to the scarcity narrative that is growing within crypto right now.

"Bitcoin is getting more scarce because there will only ever be 21 million BTC in existence. Sadly, some of these will get lost because of forgotten passwords or damaged storage devices, which will continue to contribute to its scarcity." David Kemmerer Co-Founder and CEO of CoinLedger said. "The upcoming halving will further drive this scarcity and reduce the rate at which the new Bitcoin enters circulation."

With these scarcity pressures mounting on the crypto market, ETFs are seeing more traditional demand for BTC than ever before.

"[Bitcoin ETFs are] making it easier for more capital to flow into the asset," McClean said. "As more investors allocate funds to Bitcoin via ETFs, the available supply on exchanges and in circulation may decrease, potentially putting upward pressure on the price."

Unfortunately, though, this doesn't come without a downside.

Many crypto maximalists will believe that investing in BTC via a centralized authoritative body, isn't why Bitcoin was created in the first place.

"Bitcoin's original vision of a peer-to-peer electronic cash system has taken a backseat to its new role as digital gold and an inflation hedge," McClean explained. "It has also shifted focus away from the long-term benefits of decentralization. For those who believe in a more open and accessible financial system, this trend is concerning."

The newborn nine challenging Grayscale's long-held dominance in the crypto fund market which has reduced centralization in one sense. But it has also resulted in 4% of Bitcoin's total supply being wrapped up in ETFs—just 1% less than Coinbase held last year.

"Having 4% of Bitcoin's supply wrapped up in ETFs is a notable amount, but I don't necessarily view it as unhealthy from a decentralization standpoint." McClean said, "As long as individuals have the freedom to choose between self-custody and ETFs, and the majority of Bitcoin remains in the hands of individual holders, the decentralized nature of the network is preserved."

Edited by Stacy Elliott.

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