Dialogue with Bloomberg ETF Analyst: Why haven't Bitcoin ETF holders sold during the 50% crash

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Source: Coin Stories

Curated by: Felix, PANews

Bloomberg senior ETF analyst James Seyffart returns to Coin Stories for an in-depth look at the latest developments in the ETF space: from the unexpected “diamond hands” strategy by Bitcoin ETF holders during a 50% drawdown, to the milestone decision by Morgan Stanley to launch its own Bitcoin ETF.

Host: It’s been a while since we covered the ETF topic. Why don’t we start with Bitcoin—what’s the current situation with Bitcoin ETFs?

James: Talking purely about inflows and outflows may not sound that exciting, but I think it’s helpful to give you and your audience an occasional status update. About a year ago, we went through a major selloff around April 2025 (or earlier), and from that low point through October 10, there were roughly $25 to $30 billion in inflows to Bitcoin ETFs—really strong performance. But starting around October 10, about $9 billion flowed out. At the time, the media talked about it as if the world was ending—that money was fleeing at massive scale. But if you step back, you can see that in the prior few months, inflows exceeded $25 billion, so a $9 billion outflow isn’t a big problem. Money goes in and money goes out—ETFs are designed to work that way. What you want to see is a long-term upward trend. So from February 23 to late March, there were actually a fairly large amount of inflows. A lot of those outflows reversed; roughly another $2 to $2.5 billion flowed back in. Not every outflow reversed, but things have stabilized, and the price has become more stable too—we’ve been setting higher lows almost every week. So Bitcoin ETFs have performed extremely well: they’ve handled this situation effectively, and there’s no disconnect in the market. Buying is still happening.

We learned from 13F filings that, in the fourth quarter, some investment advisors and hedge funds were selling. I think this has a lot to do with basis trading, so some of the outflows I just mentioned may have almost nothing to do with the price action. It’s more about basis trading—namely, when you short futures and buy spot, you can earn a form of risk-free return, something that many previous guests have discussed. But I want to emphasize this: if an asset drops by more than 50%, and the outflow (about $9 billion) is still less than 15% of the total inflows from the first two years after launch, that’s really fantastic. So what ultimately happened is: the OGs sold Bitcoin, but the holders of Bitcoin ETFs turned out to be the real “diamond hands”—they stayed committed and held.

Host: That’s exactly the point I want to dig into. Because I saw you and Eric Balchunas tweet that people weren’t supposed to be able to withstand drawdowns as large as 50%, but in the ETF world they managed it—they held on instead of selling.

James: Yes. When we launched the ETFs, we said that many people who didn’t like ETFs would think, “The holders will be weak; the moment something happens, they’ll sell.” But the reality is: if you’re an ETF holder, you probably didn’t buy that ETF because someone pitched it to you. You chose to actively learn what an ETF is, learn what the underlying assets are, and then make a decision. By understanding it, you realize that historically this asset has experienced drawdowns of 70% to 80% multiple times. And for investors at Vanguard, they put money into their investment accounts on a fixed schedule every two weeks—many of them are doing it just to achieve a set asset-allocation target. Before the ETFs launched, we discussed what would happen if the allocation were 1%, 3%, or 5%—not something like Bitcoin-tilters where it takes up 80% of net assets. For these ETF holders, it’s only a small part of their portfolio. So if it’s just a 3% position, even if it drops by 50%—sure, it’s a bit painful, but it’s not a big deal—they won’t sell and run. I think what’s happening right now is actually that people add to the position when they rebalance their portfolios. If your goal is a 5% allocation and after it gets cut in half it’s down to 2.5%, then when you rebalance at the quarterly or annual level, you buy again to get back to the 5% allocation. The same goes for when prices rise. As the importance of Bitcoin ETFs grows, this is one of the reasons we’ll see price volatility become more subdued. In theory, you shouldn’t see extreme top-chasing euphoria, and you also shouldn’t see a total breakdown. That’s what we’re seeing: we haven’t seen a 70% drawdown below $40k, and we haven’t seen extreme top-chasing euphoria. Basically everyone says this, but I think you saw it in the ETFs—and there’s good reason for it to happen.

Host: Can you share who’s buying and holding these ETFs? We’ve seen it in university endowments and retirement funds. And I heard IBIT is Harvard University’s largest holding?

James: Yes. With these 13F filings, you can only see equity holdings. Fortunately, because ETFs fall within the reporting standards for that, we can see who holds the ETFs—but we can only see long positions. Hedge funds are a major user group for ETFs, but based on their net asset value, they often take short positions. So I should remind you: we don’t know the specifics of Harvard’s endowment, but they do hold a large proportion. Yale University also holds these assets, including Ethereum. The largest buyers still are investment advisors, wealth advisors, and broker-dealers—meaning typically middle-to-upper-income everyday people who have advisors helping them manage their finances. Even so, what 13F can show is still limited. By the end of September 2025, the proportion of holders we knew about was only about 27%. Even when we saw some slight outflows from hedge funds and advisors in the fourth quarter, that number dropped to below roughly 25%. That suggests we only know the identity of about one-quarter of the holders—and that also means the vast majority are held by retail investors through brokerage platforms like Robinhood or Schwab, or by international institutions that don’t need to file 13F reports. As for institutions, most of them are investment advisors—and at the 13F level, they are institutions.

Host: There are 11 ETFs that have been approved, right? How are they performing now? And Morgan Stanley is about to enter—how big of an impact will that have?

James: Yes. It’s probably already 12 now. You can also count futures products, buffered products with an options cap, and covered-call products. Bitcoin-related products have already formed a complete mini-ecosystem, and they’re all doing well. A lot of people say, how could there possibly be so many products? But it depends on the amount of inflowing capital— even the smallest ones still have a few hundred million dollars coming in and they’re profitable. As for rankings, BlackRock’s IBIT is far ahead across metrics like trading volume, assets under management, and capital inflows. Behind it are things like Vaneck’s HODL, Bitwise, Fidelity’s FBTC, and so on—these funds are all operating well. For ETFs, the key is whether they’re attracting capital, whether their asset scale is large enough, and whether the product is profitable. Everything is happening now.

Then you mentioned that Morgan Stanley is going to launch a Bitcoin ETF, and that’s a big deal. Recall the 2017 slogan: “Long Bitcoin, short the banks.” And now one of the biggest banks in the U.S. is about to launch a Bitcoin ETF. It’s extremely rare for Morgan Stanley to issue an ETF under its own brand—they have “assets in-house.” On their platform, clients have over $6 trillion in assets. When clients ask about Bitcoin and want to include it in their portfolio, since they can do it themselves without having to hand the money to another issuer, they naturally push forward. Even though some Bitcoin supporters think banks are assimilating something they wanted to overthrow, this is absolutely a major event.

Host: Do you think this is the beginning of all the large banks starting to enter the space and issue their own ETFs?

James: Honestly, when Morgan Stanley filed for ETFs on Bitcoin, Ethereum, and Solana at the same time, I was surprised. They’re late to the game, and so far the products don’t look differentiated—they’re just another spot product. There are already other products being filed in the market that are designed to offer unique ways to play Bitcoin—for example, the covered-call options approach I mentioned earlier. There are also products that combine Bitcoin exposure with carbon credit limits, aimed at institutions worried that Bitcoin mining creates problems. We don’t need to dig deep into that topic, but you can understand why institutions would want that kind of product.

Based on the applications so far, it seems to be just another standard spot Bitcoin product. Relative to others, there’s not much differentiation—at least I don’t see it, and I’m not afraid of being corrected. It’s interesting that they entered this space at this stage, but like I said, it’s because they have the advantage of bringing their own customer base. I don’t think other banks will necessarily follow. Morgan Stanley is especially large. But I also came in with a caveat: I didn’t even expect Morgan Stanley to do this in the first place.

Host: Has anything changed in-kind redemption-wise?

James: Great question. This is becoming increasingly important. In the first few years, issuers wanted to allow in-kind redemptions (exchanging Bitcoin for ETF shares, and vice versa), but it wasn’t allowed. Now it is allowed. Previously, you had to go through a “cash creation” process. There were a bunch of unnecessary steps because, at the time, the specific market-making banks and market makers for these ETFs were not allowed to access the crypto markets. So they had to route everything through cash flows, and they had to have subsidiaries that could handle that cash. The ETF itself had to go out and buy Bitcoin—typically through a prime brokerage trading desk, such as CoinDesk or some other service provider.

Host: And now we can use the model we just discussed.

James: Yes. Product efficiency has become extremely high. If you buy IBIT or FBTC in the U.S. and the bid-ask spread is only a few cents with nearly no trading fees, that means a lot for ETF efficiency. Now they’re connecting to the spot market. Right now, only authorized participants—meaning big banks—can do this. But for example, VanEck has a gold product where, as long as retail investors reach a certain holding amount, they can have gold delivered directly to their doorstep. So over the next few years, I have no doubt that if you have $10k to $20k in a Bitcoin ETF, and you’re approved by the whitelist, they’ll send the Bitcoin straight to your wallet address. It won’t be as heavy as gold—Bitcoin can be sent instantly. And because of competition among issuers, in the future this could become a cheaper and more efficient way to gain Bitcoin exposure than getting it through a centralized exchange.

Host: One thing I want to ask: most of these ETF issuers use the same custodian. Isn’t that a kind of risk?

James: Yes. Coinbase custodied most of Michael Saylor’s Bitcoin, and it also custodies about 2/3 or 3/4 of the Bitcoin held by ETFs. Even though there are many applications trying to diversify custodians—BlackRock selected three staking providers, and BitGo and Gemini are also custodians for certain companies—ultimately, it’s still highly concentrated on Coinbase. So when you look at the ETF holdings data you see, a large portion of it is in Coinbase’s vault. But that’s the “Lindy effect”: the longer you’ve been in the market, the more you’re trusted, and issuers still choose them in this process. That’s exactly something I’m watching—and slightly concerned about.

Host: Many Bitcoin supporters have been disappointed by gold’s performance as an inflation hedge and protection against currency debasement, relative to Bitcoin. How are gold ETF flows looking?

James: Previously we talked about Bitcoin ETF outflows from October to February, while gold went in the opposite direction—money poured into gold ETFs like a flood. The gold price also broke above $5,000. But ironically, the direction has reversed now: large amounts of capital are flowing out of gold, but the situation is the same as Bitcoin. The money that flowed in earlier was far more than what’s flowed out over the past few weeks. Over the past eight months, the flows into Bitcoin and gold have been almost negatively correlated. That’s because, during that time, Bitcoin’s performance was very closely tied to software stocks. When Bitcoin dropped below $60k, nobody bought the dip—everyone waited and watched, until it bottomed and went sideways. Then money returned. Gold is similar: people are withdrawing now. That’s because people tend to sell what’s been rising. For example, if you want to hold cash due to the Iran situation, would you sell an asset that dropped 50%, or would you sell an asset that gained 50%? Obviously, you’d sell the latter. That’s the market reverting to the mean.

Host: What is the largest gold ETF?

James: GLD. It’s the SPDR Gold Trust co-run by State Street Bank and the World Gold Council. But they also have GLDM, which is a mini version with much cheaper management fees. Then there’s BlackRock’s IAU, along with the cheaper mini version IUM. But they all do essentially the same thing: typically storing gold in some vault in London, that’s basically it.

Host: How do they compare with Bitcoin ETFs in terms of scale and liquidity?

James: Liquidity is about the same. But gold ETF scale is much larger. The first gold ETF was launched in 2004. It allowed people to make long-term gold allocations for the first time, and it kicked off a bull run that lasted all the way to 2011. In December 2024, the total scale of Bitcoin ETFs came close to gold ETFs, just tens of billions behind. But after that, Bitcoin was sold off, while in 2025 gold went through a “double tailwind”—a price surge and heavy inflows. Now the size of gold ETFs is almost twice that of Bitcoin ETFs.

Host: Do you think Bitcoin can catch up?

James: Our view is that Bitcoin ETFs will eventually surpass gold ETFs in scale, but right now it’s hard to say. There are many reasons people buy Bitcoin ETFs: some see it as “digital gold” or a risk-diversification tool; others believe in Michael Saylor’s digital asset credit narrative. In contrast, gold’s use case is much more limited (a diversification tool and a hedge against currency debasement). At the same time, the market currently also treats Bitcoin as a “risk-on growth asset” to trade. So in a portfolio, Bitcoin can serve as that “flavoring” for pursuing liquidity growth. That’s why I think they’ll ultimately catch up to gold—just that the near-term trend happens to be the opposite right now.

Host: Everyone knows Bitcoin’s allocation in a portfolio is small. But I’ve found that almost nobody actually holds gold. Advisory firms currently have a very low percentage allocated to gold. Do you think this will change? Will it gradually increase to a 3%–5% allocation?

James: Yes. The problem with gold is that many advisors think it’s just “pet rock” material and they don’t see a reason to hold it. But I do think that will change—especially as we move toward a more multipolar world. A lot of research shows that if you replace the bonds in a 60/40 portfolio with gold, the long-term return outcome is almost the same. People complain that gold didn’t rise when inflation spiked, but that’s because gold, like Bitcoin, has almost zero correlation with inflation in the short term—it’s not a short-term hedge tool. It’s a long-term hedge against currency debasement. Because of its low correlation, it’s an excellent risk-diversifying asset. Bitcoin’s correlation with other traditional assets is only around 0.2 to 0.3, which makes it very suitable for diversifying risk. Since markets have been extremely volatile, pullbacks in precious metals even look a bit like digital assets—especially silver.

Host: Yes. Can you take a step back and share your view on the broader market? The stock market has been strong, but private credit has seen some volatility that’s affecting valuations. What do you think will happen over the next 6 to 12 months?

James: There’s always someone on the market highlighting crises from geopolitics and AI substitution, and it’s easy to make them seem really smart. But I’m a long-term bull, and the underlying logic is that people are working every day to improve the world. So my money is still allocated to stocks and other risk assets. As for private credit, the business development companies (BDCs) that trade publicly are currently trading at more than a 20% discount, which indicates how worried everyone is. Where there’s smoke, there’s fire—there are real fraud issues in private credit already. And private credit is heavily skewed toward the software industry. As AI pushes the cost of developing new software close to zero, people worry that loans to these software companies won’t be repaid. The market is pricing in the severe problems in private credit. Liquidity in these lockup products is extremely poor. Once you want to exit, you can’t produce the money. Hopefully investment advisors will fully explain this non-liquidity risk when selling these products.

Host: I’d also like to ask about those derivative Bitcoin-related products, like Strategy’s digital credit. Do you think we’ll see ETFs that include these perpetual preferred stock-style tools?

James: Yes. There are already preferred stock ETFs in the market, and a small number of ETFs also invest in the equity and debt of digital asset finance companies. While the inflows aren’t huge yet, if this lane keeps growing, they’ll very likely end up being packaged into ETFs focused on crypto and Bitcoin assets and liabilities balance-sheet companies.

Host: We’re in a very tense, chaotic period—geopolitical crises, fear of being replaced by AI, and so on. What are you watching most closely, and what do you want people to know?

James: I’m watching where people are putting their money. Ironically, we’re seeing the market move into much greater diversification. Last year everyone was talking about the tech mega-cap “MAG 7,” but actually since the third quarter of 2025, they’ve been performing only average. What’s performed better are small-cap stocks, real assets, and international equities. So I want to say: diversification is extremely important.

Also, over the past six months, there’s basically been nothing that you can use to hedge or that shows a negative correlation: Bitcoin is down, gold is down, and bonds haven’t provided diversification either. The only thing left that can diversify is cash. This is “the disappearance of hedging tools.” Aside from very complex options derivatives, for most people, the main way to deal with this is to keep a diversified portfolio and hold some cash.

Further reading: a16z wealth manager: Embrace 40% market drawdowns—don’t put 80% of your “first bucket of gold” into friends starting businesses