Encryption ETF ignites the bull run of 2025, the wave of institutional allocation is just in time.

Summary

Since 2024, the successful launch of the Bitcoin spot ETF marks a new phase for the cryptocurrency asset market. With continuous inflow of institutional funds, market liquidity has significantly increased, driving Bitcoin and other crypto asset prices to new highs. Looking ahead to 2025, with potential interest rate cuts, an increase in institutional investor allocation ratios, and the continuous improvement of Web3 infrastructure, the crypto industry is expected to usher in a new round of large-scale increases. This article delves into the far-reaching impact of ETFs on the market and explores the core drivers that may trigger further market increases.

1. The Impact of Crypto ETFs on the Market

The successful launch of the Bitcoin spot ETF is seen as an important milestone for the cryptocurrency market's move towards mainstream finance. It not only provides institutional investors with a compliant and secure investment channel, but also has a profound impact on market liquidity, price discovery mechanisms, volatility, and market confidence. This section will conduct an in-depth analysis around the following aspects:

1. The Launch of Bitcoin Spot ETF: Opening a New Era of Institutional Investment

(1) Background and Approval Process of ETF

Over the past decade, institutional investors' interest in Bitcoin has gradually increased. However, due to regulatory restrictions, custody challenges, and market opacity, many traditional financial institutions find it difficult to invest directly in crypto assets. The launch of the Bitcoin ETF provides these institutions with a low-threshold and compliant investment method. The approval of the Bitcoin ETF not only marks a loosening of the regulatory framework for Bitcoin market oversight, but also paves the way for future ETFs of other crypto assets.

(2) The trading model of ETFs and its appeal to institutions

Compared to directly purchasing Bitcoin, ETFs have the following advantages, making them more aligned with the needs of institutional investors:

Compliance: ETFs are regulated, so investors do not need to worry about compliance risks.

Security: Institutions do not need to self-custody Bitcoin, avoiding losses due to lost private keys or hacker attacks.

Liquidity: ETFs can be freely bought and sold on exchanges, increasing the liquidity of assets.

Tax advantages: In some areas, investing in ETFs has more advantages in tax treatment compared to directly holding Bitcoin.

This series of advantages makes Bitcoin ETFs the preferred tool for institutional investors to allocate crypto assets.

2. ETF Fund Inflow Situation and Its Impact on the Market

Since the launch of the Bitcoin spot ETF, it has continuously attracted a large influx of funds, having a profound impact on market prices and structure.

(1) ETF capital inflow data

According to data platform reports, as of Q4 2024, institutional investors' interest in spot Ethereum ETFs has significantly increased, with the institutional holding ratio of Ethereum ETFs jumping from 4.8% to 14.5%; at the same time, the 25.4% of assets under management (AUM) of spot Bitcoin ETFs held by institutional investors totaled $26.8 billion, with these institutions' holding ratio growing by 113% from Q3 to Q4 2024, and total AUM soaring by 69% to $78.8 billion. Particularly, as more sovereign nations/enterprises begin to incorporate Bitcoin into strategic reserves, and expectations for staking in Ethereum ETFs continue to rise, the market size of these ETFs will further expand.

(2) The driving effect on Bitcoin prices

After the launch of the ETF, institutional investors gradually increased their positions in Bitcoin, significantly changing the supply and demand dynamics of Bitcoin. In December 2024, the price of Bitcoin briefly surpassed the psychological barrier of $100,000, setting a new historical high, and in January 2025, just before Trump's inauguration, it broke through the $109,000 mark, once again setting a new historical high.

More importantly, the inflow of funds into ETFs belongs to long-term holding funds (HODLers), which is different from the short-term trading behavior of retail investors. This flow of funds will reduce the selling pressure on Bitcoin and create a continuous buying support. If the trend of inflow into ETFs continues, Bitcoin may see a larger increase in 2025.

3. How ETFs Change Market Structure?

The successful launch of Bitcoin ETFs is not only a catalyst for price increases but also profoundly changes the overall structure of the cryptocurrency market.

(1) Enhancement of market liquidity

Bitcoin ETFs provide a standardized investment tool that allows more traditional financial institutions to quickly enter the market. With the increase in ETF trading volume, market liquidity has significantly improved, which means:

Less price manipulation: After liquidity is enhanced, the impact of large-scale sell-offs or buy-ins on the market will decrease, reducing the space for manipulation.

Narrowing price differences: In the past, the limited trading depth of the cryptocurrency market led to significant price differences for Bitcoin between different exchanges. The introduction of ETFs can promote price uniformity.

(2) The decrease in Bitcoin volatility

Bitcoin has long been considered a highly volatile asset, but the launch of ETFs may reduce short-term market volatility:

Institutional positions are usually long-term investments and do not trade as frequently as retail investors, reducing the likelihood of severe market fluctuations.

The arbitrage mechanism of ETFs can make the price of Bitcoin more stable. For example, when the ETF is trading at a high premium, arbitrage traders will sell the ETF and buy Bitcoin, thereby suppressing price volatility.

Data shows that since the launch of the ETF, Bitcoin's 30-day historical volatility has decreased from around 65% to about 50%, indicating a downward trend.

(3) The Impact of the Derivatives Market

The success of Bitcoin ETFs has also prompted further maturation of the derivatives market. As institutional investors use ETFs for hedging, the following trends may gradually emerge:

The liquidity of the Bitcoin options market has increased, providing more efficient risk management tools, enhancing the linkage between the spot market and the derivatives market, reducing irrational market fluctuations, and ETF holdings will become an important barometer of market sentiment, influencing investor expectations.

4. Will the success of ETFs be replicated in other crypto assets?

The success of the Bitcoin ETF has sparked significant interest in other cryptocurrency asset ETFs.

(1) Expectations for Ethereum Spot ETF Staking

Currently, some Ethereum ETF issuers have submitted applications to regulators for a stakeable Ethereum spot ETF, and regulators have confirmed receipt of proposals for staking the Ethereum ETF. The market widely expects that the stakeable Ethereum ETF will be approved in 2025.

Once the Ethereum ETF that can be staked is approved, the market impact it may bring includes:

• Institutional funds are rapidly entering the ETH market, driving up ETH prices.
• Accelerate the development of the ETH ecosystem and increase the activity in sectors such as DeFi and NFTs.
• Promote the demand for ETH 2.0 staking and reduce market selling pressure.

(2) Potential future ETF products

If the stakable Ethereum ETF is successfully launched, the crypto asset ETFs that may be approved in the future include:

• Multi-Asset Crypto ETF (BTC + ETH + Other Mainstream Assets)
• Other public chain ETFs
• DeFi Blue Chip ETF
• RWA (Real World Asset) Tokenized ETF

The launch of these products will further expand the coverage of institutional funds and promote the long-term development of the cryptocurrency market.

2. Key Growth Factors of the Cryptocurrency Market in 2025

In 2024, with the launch of the Bitcoin spot ETF, institutional investors began to enter the cryptocurrency market on a large scale, bringing new inflows of capital and stability to the market. However, the growth of the cryptocurrency market in 2025 will not only rely on ETFs but will also be driven by multiple factors. Here are the key growth factors that may drive the cryptocurrency market to new highs in 2025:

1. Macroeconomic Environment: Liquidity Turning Points and Global Monetary Policy

(1) Federal Reserve Monetary Policy: Market dividends brought by interest rate cut expectations

The Federal Reserve's monetary policy is an important variable affecting the liquidity of global capital markets. Currently, the market generally expects that the Federal Reserve will continue to cut interest rates in the mid to late 2025. This policy shift will have the following impacts on the cryptocurrency market:

Lower capital costs and promote the rise of risk assets: During a rate-cutting cycle, bond yields in traditional markets decline, and institutional investors are more willing to allocate to high-growth assets such as tech stocks and crypto assets.

Enhancing Bitcoin's "digital gold" attributes: When real interest rates decrease or even turn negative, the appeal of inflation-resistant assets like Bitcoin increases, potentially attracting more safe-haven capital into the market.

Increased leveraged trading activity in the crypto market: After the decline in interest rates, traders' financing costs have decreased, which may drive an increase in leveraged demand in the crypto market, boosting overall trading volume.

In addition, major global central banks may also enter a loose monetary policy cycle in 2025, further releasing market liquidity and creating favorable conditions for the crypto market.

(2) Geopolitics and Global Capital Flows

In recent years, the global geopolitical situation has become increasingly tense, with factors such as regional conflicts and challenges to the dollar's hegemonic status accelerating the global reallocation of capital. Against this backdrop, crypto assets are becoming an important vehicle for safe-haven funds and capital flows in emerging markets.

Emerging market investors are increasing their demand for Bitcoin: in high-inflation countries such as Argentina and Turkey, people are more inclined to hold cryptocurrencies like Bitcoin to hedge against the risk of local currency depreciation.

The recognition of Bitcoin as a non-sovereign asset by institutions is increasing: the intensification of sovereign debt issues may lead more institutions to include Bitcoin in their investment portfolios as a hedge against traditional financial system risks.

Web3 Enterprises See Growth in Financing and Investment Demand: As global capital flows into the crypto market, Web3 projects and innovative companies may experience a new wave of financing.

2. Institutional Allocation Wave

According to the latest disclosed data regarding Bitcoin and Ethereum ETF holdings, 15 institutions have positions in Bitcoin/Ethereum spot ETFs for 2024, covering investment firms, hedge funds, banks, and pension funds. The cumulative value of these institutions' holdings exceeds $13.98 billion, with several institutions holding positions worth billions of dollars. Compared to the previous statistics on mainstream institutions' Bitcoin spot ETF holdings in multiple quarters of 2024, these institutions have significantly increased their allocation. In terms of holding strategies, each institution has different market expectations and asset allocation directions, with several institutions making large-scale increases in holdings in the fourth quarter of 2024, especially one particular ETF that is particularly attractive to investors. In terms of holding structure, the vast majority of institutions focus on Bitcoin spot ETF products; however, starting from Q4, many institutions have increased their investment in Ethereum ETFs, primarily focusing on a few major ETF products.

3. The Dual Effect of ETF + Halving

Unlike previous halving cycles, this time the market has welcomed institutional capital inflows from Bitcoin spot ETFs, which means that the supply-demand relationship will become more skewed:

The daily buying demand from ETF institutions exceeds the daily newly issued Bitcoin from miners, which may create a supply squeeze and subsequently drive up the price.

If an ETF buys a net of 1,000 bitcoins every day, while miners only produce 450 bitcoins daily, this supply-demand imbalance could lead to a sharp decrease in the liquid bitcoin supply available in the market, thereby accelerating the price increase.

Overall, the market structure of Bitcoin in 2025 is expected to undergo significant changes, with halving and ETF capital inflow potentially driving the price to new all-time highs.

4. Ethereum Petra Upgrade

According to the latest news from the Ethereum Foundation, the Prague/Electra (Pectra) upgrade is scheduled for early April 2025. The most notable planned changes include: variable validator effective staking, with a maximum of 2048 ETH, which will significantly change the distribution of staking, the validator schedule, and improve the management of large staking providers by integrating smaller stakes to simplify the interaction between the execution layer and the consensus layer, streamlining the data exchange between Eth1 execution blocks and beacon chain blocks. This will greatly simplify deposits, activations, withdrawals, and exits, speeding up these processes and laying the foundation for further interaction between the consensus layer and the execution layer. It will support cheaper BLS signatures and zkSNARK verification directly in smart contracts through a new "pair-friendly" BLS12-381 precompile. It encourages Rollups by increasing the blob transaction threshold and raising calldata costs, allowing EOAs to act as programmable accounts, granting them multi-calls, sponsorship, and other advanced features. As you can see, Pectra will have a significant impact on staking and the consensus layer, as well as the end-user experience of the execution layer.

5. The Explosion of Real World Asset (RWA) Tokenization

Tokenization of RWA (Real World Assets) is becoming the next growth point in the blockchain industry.