Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Are Making Bitcoin ETFs a Mainstay
Transcript
- Lucas: So the S&P 500 is sitting at 7,443 after a 1.3 percent dip this week. The Nasdaq is off 2.3 percent. And yet, Bitcoin ETFs just posted their tenth consecutive week of net inflows. Luna: That is a weird disconnect, isn't it? Equities are pulling back a bit — not a correction, but a pause — and crypto ETFs are still seeing money come in like it's 2024 all over again. Lucas: Right, but it's different this time. The buyers are different. In 2024, the first wave of inflows into spot Bitcoin ETFs was largely retail, a lot of momentum chasers. Now, in July 2026, we're seeing institutions treat these products as a core portfolio holding. Luna: Define core. You mean like a permanent allocation, not a tactical trade? Lucas: Exactly. I was looking at the latest 13F filings — the quarterly reports that show what big money managers hold. A surprising number of pension funds, endowments, and even some insurance companies now have a small, but persistent, position in spot Bitcoin ETFs. Not betting on a rally, just holding. Luna: That's a big shift from two years ago when most fiduciaries wouldn't touch crypto with a ten-foot pole. Lucas: And the catalyst isn't just the bull market. It's the regulatory clarity that's emerged. The SEC's framework for digital assets, finalized in the first half of 2025, gave a lot of compliance officers the cover they needed. Plus, the Fed Funds rate has been steady at 3.63 percent since June. That stability encourages yield-seeking behavior, and Bitcoin ETFs have become part of that conversation. Luna: So you're saying the bull market created the conditions, but regulation and rate stability are what made it stick? Lucas: That's my read. Look at the numbers: the largest spot Bitcoin ETF, the one managed by BlackRock, has seen assets under management grow from around $20 billion at the start of 2025 to over $45 billion now. That's a compound annual growth rate that beats most asset classes. And the inflows haven't slowed during this week's equity dip. Luna: That is impressive. But I wonder — is this a durable trend or just another cycle where institutions pile in near the top? Lucas: That's the billion-dollar question. On one hand, the fact that they're not selling during a risk-off week suggests conviction, not speculation. On the other hand, we've seen this movie before — 2021 was full of institutional 'adoption' narratives that evaporated when crypto winter hit. Luna: Right. But 2021 didn't have a spot ETF. That changes the calculus. You can't just buy the Grayscale trust at a 20 percent premium anymore. The ETF structure is cleaner, more liquid, and it forces price discovery. Lucas: Exactly. And that's why this feels different to me. The ETF wrapper brings a level of efficiency and transparency that institutional money demands. You're not holding actual Bitcoin on a cold wallet; you're holding shares that trade on the NASDAQ. That's a huge psychological barrier removed. Luna: And the cost? The expense ratios on these spot Bitcoin ETFs have come down to around 0.25 percent for the biggest ones. That's competitive with many equity ETFs. Lucas: Yeah, the fee compression has been brutal for issuers. But it's great for investors. And it's another sign that this is a mature market, not a niche. I think the bull market has accelerated a structural shift that was already underway, but the pace has surprised me. Luna: Let's talk about the elephant in the room — the correlation to equities. Bitcoin was supposed to be a hedge, but during this week's equity dip, Bitcoin itself is only down about 0.8 percent. So the correlation is not one-to-one, but it's not zero either. Lucas: That's actually a healthy sign from an institutional perspective. If Bitcoin were down 5 percent when the Nasdaq was down 2 percent, that would spook allocators. The fact that it's relatively decoupled, at least in this small drawdown, reinforces the diversification argument. Luna: Speaking of allocators, I saw that the Harvard endowment increased its stake in a Bitcoin ETF by 40 percent last quarter. That's not a tiny drip. Lucas: That's huge. Endowments are the ultimate slow money. If Harvard is buying, it sends a signal to the entire institutional world. And they're not alone — Yale, Stanford, and even some state pension funds have followed. Luna: So the adoption is real. But what's the risk? If the bull market falters, do these inflows reverse? Lucas: Probably some, but not all. The sticky part is the allocations that are now part of a strategic asset allocation model. Once a pension fund decides Bitcoin ETFs are a 1 percent or 2 percent permanent allocation, they're not going to sell that just because the S&P dips 10 percent. They might rebalance, but they won't exit. Luna: That's a good point. And the steady Fed rate environment helps. If rates were spiking, that could change the calculus for yield-seekers. Lucas: Exactly. The Fed has held at 3.63 percent for over a month now, and the market expects that to continue through the fall. That's a tailwind for all risk assets, including crypto. But it's not just about rates. The broader narrative has shifted from 'crypto as a gamble' to 'crypto as a portfolio diversifier'. Luna: I think that's the key takeaway. The bull market gave crypto ETFs legitimacy, but the structural changes — regulation, ETF adoption, institutional buy-in — are what will sustain them even if the market cycles. Lucas: Honestly, if today's conversation helped you think about your own portfolio differently, that's the kind of thing that makes this show worth it. If it was worth a coffee to you, you know where to find us — buy me a coffee dot com slash fexingo. Luna: Yeah, listener support is what keeps this ad-free. We appreciate it. Lucas: So, back to the numbers. One data point I find fascinating is that the open interest in Bitcoin ETF options has exploded. The CBOE now lists weekly options on the largest spot Bitcoin ETF, and the volume has grown fivefold year-over-year. Luna: That's a sign of maturity. Options markets only develop when there's enough underlying liquidity and demand for hedging. That's not happening in a bubble. Lucas: Right. And it creates a feedback loop. More options mean more hedging, which means more institutional participation, which means more liquidity. The ETF ecosystem is self-reinforcing. Luna: Let's zoom out. In the context of the broader bull market, which has seen the S&P rally from around 4,800 in late 2023 to over 7,400 now, the Bitcoin ETF story is just one chapter. But it's a chapter that tells you a lot about how this cycle is different. Lucas: Absolutely. In past cycles, when the market got frothy, the first thing to go was crypto. This time, crypto ETFs are acting more like a normal asset class. They're not the canary in the coal mine; they're just another car on the train. Luna: And that's a big deal for financial advisors who were previously gun-shy. Now they have a product they can recommend without getting fired. Lucas: Exactly. The advisor channel is the real growth engine. We're seeing wirehouses like Morgan Stanley and UBS allow their advisors to allocate client money to Bitcoin ETFs, with restrictions, but it's happening. That's a massive distribution network. Luna: So where do we go from here? If the bull market continues, do we see Bitcoin ETFs become a trillion-dollar asset class? Lucas: It's not impossible. The total addressable market is huge. If even 1 percent of global assets under management flows into these products, that's over a trillion dollars. We're at about $100 billion now across all issuers. So there's a long runway. Luna: But it's not linear. We'll have drawdowns. The question is whether the institutional holders will hold through them. Lucas: That's the test. And we haven't had a real crypto winter since the ETFs launched. If we get a 50 percent drawdown in Bitcoin, and institutions hold or even add, then the thesis is proven. Luna: I think they will. The allocations are still small enough that a drawdown won't trigger forced selling. And the long-term narrative — digital gold, portfolio diversification — is deeply embedded now. Lucas: Agreed. The bull market opened the door, but the structural changes have built a foundation that should survive the next downturn. That's the real story here. Luna: Well said. Let's see if the data backs it up in the coming quarters. Lucas: We'll be watching. For now, it's a fascinating moment in the evolution of crypto as an asset class.