Bitcoin ETFs are ‘orange FOMO poker chips’ that siphon on-chain funds back into TradFi

Despite promising to bring more baby boomers into Bitcoin, the United States spot Bitcoin exchange-traded funds (ETFs) could pose a greater risk to on-chain adoption and liquidity.One of the biggest concerns with ETFs is how they could cannibalize on-chain liquidity, according to Jim Bianco, founder of macro research firm Bianco Research, who wrote in a May 19 X post:The warning comes during a decisive week for Bitcoin (BTC) price, which is trading below a crucial resistance line. Bitcoin could rally to new all-time highs if it manages to decisively break above the $67,500 mark, Markus Thielen, the head of research at 10x Research.However, instead of facilitating more adoption, the ETFs seem to be pulling on-chain liquidity into the world of traditional finance (TradFi), which was a long-standing concern for the macro researcher. This is evidenced by the Q1 financial results of Coinbase, which showed that revenue stood at $1.64 billion despite retail trading volume being just half of 2021 levels. Meanwhile, institutional trading volume increased to $256 billion in the first quarter from $215 billion in Q1 2021.According to Bianco, this is a sign of Coinbase balancing institutional growth to offset retail trading decline:In any case, the findings could raise a problematic question for Bitcoin’s narrative as a decentralized alternative to the fiat fiscal system. Bianco wrote:Moreover, the ETFs have also failed to attract baby boomers, as over 85% of the underlying BTC is held by retail investors, with only 10% held by hedge funds. ccording to Bianco: Inflows from the U.S. Bitcoin ETFs turned positive on the week of May 6, following a three-week slump of net negative outflows. The U.S. Bitcoin ETFs amassed over $200 million worth of cumulative net inflows during the past week, according to Dune data.Related: Trader turns $2.2K of SOL into $2.26M in 8 hours with new memecoinBitcoin ETF price combined with average purchase price indicates retail trading behaviorThe average purchasing price of the spot Bitcoin ETFs stood between $58,000 to $59,000. There was a widespread sell-off when Bitcoin fell below the $60,000 mark at the beginning of May, suggesting that retail investors are behind the majority of these moves. Institutional inflows from ETFs were a significant part of the current Bitcoin rally to new all-time highs. By Feb. 15, Bitcoin ETFs accounted for about 75% of new investment in the world’s largest cryptocurrency as it surpassed the $50,000 mark.Magazine: Trader turns $3K into $46M in PEPE, Ethereum gas overhaul, Tornado dev guilty: Hodler’s Digest, May 12-18