Spot bitcoin exchange-traded funds, which began trading in the U.S. today, are not anticipated to draw in a significant amount of fresh capital; instead, they may experience a shift of up to $36 billion in inflows from existing crypto instruments, according to JPMorgan.

The breakdown includes $3 billion of inflows from bitcoin futures-based ETFs, $3-$13 billion from Grayscale Bitcoin BTC -1.30% Trust, and up to $15-$20 billion from retail investors transitioning from digital wallets at crypto exchanges/retail brokers to spot bitcoin ETFs, JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a note today. The time frame for these figures is throughout 2024, Panigirtzoglou told The Block, adding that the $36 billion is the maximum estimate, not the base case or the most likely outcome.

The analysts are skeptical about some of the optimism shared by many market participants that the approval of spot bitcoin ETFs will lead to a substantial influx of fresh capital into the crypto space.

"We instead believe that the amount of fresh capital entering the crypto space will likely be more of a function of regulations and in particular a function of how much room regulators will allow for the crypto ecosystem to encroach into the traditional financial system over time," they said.

The Securities and Exchange Commission approved 11 spot bitcoin ETFs yesterday in a historic move after more than a decade of opposition. This decision is considered a breakthrough, with major traditional financial giants such as BlackRock, Invesco and Fidelity providing access to funds directly investing in bitcoin. On its first day of trading today, spot bitcoin ETFs have already crossed $4 billion in trading volume, according to Yahoo Finance data.

"We believe fees and liquidity are likely to play a key role in terms of how much money will enter the newly created ETFs," the analysts said.

GBTC could see up to $13 billion in outflows

The analysts reiterated that GBTC is expected to experience significant outflows due to its high 1.5% fees compared to other spot bitcoin ETFs. Additionally, speculative investors are likely to take profits after purchasing deeply discounted GBTC shares in the secondary market over the past year, anticipating the elimination of the discount to NAV upon conversion.

The analysts expect around $3 billion exiting GBTC and moving to the newly created ETFs, because speculative investors are likely to take profits, and an additional $5-$10 billion worth of outflows if GBTC does not lower its fees towards the 0.25% level set by BlackRock and other issuers.

"If over time GBTC loses its crown as the biggest bitcoin fund in the world, then the liquidity advantage that it currently enjoys due to its size would also be lost, thus inducing even more outflows," the analysts added.

Overall, retail investors are more likely to favor spot bitcoin ETFs, while institutional investors holding their crypto in fund format may shift away from futures-based ETFs and GBTC to the newly created, more cost-effective spot bitcoin ETFs, especially if GBTC is slow in reducing its fees, the analysts concluded.

Updates with additional comments from Nikolaos Panigirtzoglou in the second paragraph