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Projected Supply Absorption of Spot ETFs Turns Negative
Since their launch on January 11th, the repertoire of new spot bitcoin ETFs has seen incredible growth. The new ETFs have gathered 12,04 billion USD worth of flows this spring, and currently hold 831 500 bitcoins, meaning that the funds represent a 4,23 percent share of bitcoin's supply. While the ETF inflows continued to strengthen from January to March, the interest now seems to be waning, at least momentarily. When we explore the spot bitcoin ETF metrics in detail, we can see their projected supply absorption turning negative. The annualized supply absorption of spot ETFs is now at -0,38 percent, indicating that the funds are not absorbing any of the new bitcoin supply. Despite the hype around upcoming halving in 21 days, bitcoin's spot price hasn't moved dramatically within the past 30 days. One explanation for the stagnant price action is the negative supply absorption of the ETFs. When the spot ETFs can't absorb the new supply coming from the miners, the demand for the approximately 900 bitcoins issued daily must come from other sources. Although retail investors have shown growing interest towards bitcoin, their focus might be on the new Solana-based tokens and "meme coins". However, the supply absorption will become less relevant in 21 days, as the scheduled halving approaches. The halving literally halves bitcoin's block reward, reducing it from the current 6,25 to 3,125, increasing the asset's scarcity. The halving can be seen as one of the factors guiding bitcoin's spot price. Between the most recent halving event of 2020 and the following year's all-time high, bitcoin moved into a parabolic 654 percent growth trajectory. Even though the negative supply absorption of the spot bitcoin ETFs is a short-term downside, the bigger picture still looks promising. In a multi-year scenario, I see bitcoin trying to reach market capitalization parity with gold, which would mean a 1000 percent upside to the current spot price.