Choppy Start to 2025, BTC ETF Flows Steady, and the Path to Mainstream Adoption

• BTC ETFs recorded $1.2B inflows while ETH ETFs saw $136M outflows
• MSTR bought 1,070 BTC for $101M, raising holdings to 447,470 BTC
• South Korea seeks to lift ban on institutional trading of cryptocurrencies

Shaky start to 2025, ETF inflows steady, Saylor’s bitcoin armada marches on

Crypto assets traded moderately higher this week, the total market cap of the crypto universe stayed north of $3.3 trillion mark with bitcoin dominance hovering above 56%. Among the blue chips, bitcoin rose by 0.7% while ether posted a modest decline of 0.8% during the same period. It was a volatile start to 2025, as an early rally was followed by a sharp drop that wiped out much of the initial gains. In the US spot-only ETF universe, the BTC ETFs saw a net inflow of $1.1 billion while ETH ETFs saw a net outflow of $136 million for the year to date.

MicroStrategy remains the largest holder of bitcoin among publicly traded companies. On January 6, the company disclosed an additional purchase of 1,020 BTC for $101 million, bringing its total holdings to 447,470 BTC. The average purchase price for this transaction was $94,004 which raised the overall average price to $62,503. Furthermore, MicroStrategy announced plans to raise up to $2 billion through a preferred stock offering. The new offering is distinct from its 21/21 strategy which involves $21 billion in equity and $21 billion in fixed income. The preferred stock will have priority over Class A common stock and will feature convertibility to Class A shares, cash dividends, and redemption provisions. The terms for the perpetual preferred stock and pricing are still to be determined with the offering expected to take place in Q1 2025. The primary objective of this offering is to enable MicroStrategy to acquire more bitcoin.

South Korea is set to lift its de facto ban on institutional cryptocurrency trading, according to Yonhap News. The Financial Services Commission (FSC), the country’s top financial regulator, plans to gradually allow institutions to open trading accounts on crypto exchanges, starting with non-profit organizations. Currently, only retail traders verified with government-issued identification can trade cryptocurrencies. While there has been no formal ban on institutional trading, the FSC has advised banks against opening accounts for such investors. This move aligns with President Yoon Suk-yeol’s election promise to foster the local crypto sector. Yoon and the ruling People Power Party are also pushing for the launch of spot crypto exchange-traded funds in South Korea, which are currently not available.

2024 reflections, 2025 aspirations, on the road to mainstream adoption

Looking back on 2024, the crypto market rally was largely driven by bitcoin, which surged over 1.2x, while ether underperformed with a 46% gain. One of the key contributors to bitcoin's performance was the success of spot-only ETFs, alongside Donald Trump’s victory in the US presidential election. The US-listed spot BTC ETF universe recorded cumulative daily net inflows of $35.25 billion in 2024. Among the standout performers, IBIT and FBTC saw cumulative net inflows of $37.2 billion  and $11.7 billion respectively, while GBTC experienced cumulative net outflows of $21.5 billion over the year. 

While predicting the future is uncertain, several potential events could influence the direction of the market in 2025. The end-of-year dip could likely be driven by typical calendar-year factors, with institutions taking some risk off the table and realizing gains as the year ended. As markets are inherently forward-looking, the absence of significant catalysts allowed the trend to persist into early January. Talking about cues, there is growing expectation in the market that more nation-states, central banks, sovereign wealth funds, and government treasuries will add bitcoin to their balance sheets as a strategic asset, driven by rising macro concerns such as inflation, currency debasement, and expanding fiscal deficits. According to a report from Fidelity, their stance is that the risk of not allocating to bitcoin may outweigh the risk of including it in a portfolio. 

The US, China, UK, Ukraine, Bhutan, and El Salvador are currently among the largest government holders of bitcoin, according to the same report. It also highlighted that many of these countries gained exposure primarily through government seizures and the recovery of bitcoin linked to criminal activities. Both President-elect Donald Trump and Senator Cynthia Lummis (R-WY) have publicly advocated for establishing a strategic bitcoin reserve in the US, though it remains uncertain whether they will pursue this plan in 2025. In July, Lummis introduced the Bitcoin Act of 2024 in the Senate. The market is anticipating significant regulatory support for the crypto industry this year, driven by the incoming pro-crypto administration, with potential legislation on stablecoins on the horizon.

Gold hit fresh all-time highs in the last quarter, solidifying its status as a long-standing choice for inflation protection. In contrast, bitcoin, still in the process of gaining broader adoption, offers distinctive convexity benefits within a portfolio framework, reflecting its potential as a digital alternative to traditional stores of value.

The second half of 2024 saw a surge in ETF applications, broadening to include alternative assets, bitcoin and ether baskets, and even an Ethereum-staking ETF. A December filing revealed that Bitwise Asset Management applied for an ETF tracking companies that hold at least 1,000 BTC in their treasury. The proposed Bitwise Bitcoin Standard Corporations ETF would require companies to have a market cap of $100 million, a minimum daily liquidity of $1 million, and a public free float of less than 10%. Strive Asset Management, co-founded by Vivek Ramaswamy, also filed for the Bitcoin Bond ETF, which would gain exposure through derivative instruments like MicroStrategy's convertible securities in an actively managed structure. Additionally, asset manager Calamos announced a structured protection ETF aimed at offering investors exposure to bitcoin’s upside with 100% downside protection. The fund will combine options on the Cboe Bitcoin US ETF Index with Treasury holdings and is designed for a 12-month hold. The upside cap will be finalized on January 22, based on options pricing, with trading under the ticker “CBOJ”.

Bitcoin ETFs gained significant traction with investors in 2024, and 2025 is shaping up to be a busy year for structuring desks, as asset management firms explore new ways to integrate crypto and derivatives into exchange-traded products.

Macro pulse 

Among TradFi assets, the Oil futures rallied by 2.2% compared to previous week and the US equities posted a modest weekly gain of 0.6%. The FOMC Minutes revealed that members suggested the Fed was nearing a point where it would be appropriate to reduce the pace of easing. They agreed that if economic data aligned with expectations, a gradual shift toward a more neutral policy stance would be suitable. Most members anticipated a 25 bps rate cut at the December meeting, though some pointed out the risks of persistently high inflation which could justify holding rates steady. Additionally, several participants mentioned they had included 'placeholder assumptions' related to possible changes in trade and immigration policies in their projections. Fed staff also revised their forecasts, expecting slightly lower GDP growth and a slightly higher unemployment rate than previously anticipated, factoring in new data and assumptions about potential policy shifts under the incoming administration. Elsewhere, the US Dollar Index rose by 0.6%, the 10-year Treasury yield rose by 12 bps, and the Gold and Silver Index surged by 6.0% week on week.

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*^{Note: Weekly (7 calendar day) performance figures are as of 8am SGT on January 9, 2025} 

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