The Silent Power: How Bitcoin ETF Subtly Dominates the Supply Landscape?

Author: On-Chain Mind

Compiled by: Shaw Golden Finance

There is currently a quietly powerful force reshaping the supply dynamics of the market: Bitcoin Exchange-Traded Funds (ETFs). These products have already absorbed 7% of the total circulating supply of Bitcoin, and if you haven't been paying attention to them, you have missed the most important piece of the puzzle.

In this article, we will explore the capital flow situation of ETFs in detail, analyzing newly developed indicators at the forefront of capital flow analysis to help measure the impact of ETFs, and consider the market dynamics and human behavior revealed by these capital flows.

Let's get started.

Key Overview

• Absorbing large supply: Global Bitcoin ETFs currently hold over 1.4 million BTC, accounting for more than 7% of the total supply, which affects scarcity and price stability.
• Capital flow patterns and psychology: The daily and cumulative capital flow situation reflects the behavior of investors, highlighting opportunities to buy when funds are flowing out and to sell when funds are flowing in.
• Custom indicators for deep analysis: New tools such as cumulative flow divergence, flow volatility, and flow-weighted average price provide signals for market peaks, troughs, and investor cost basis.
• Long-term bullish outlook: The amount of Bitcoin purchased by ETFs has exceeded the amount newly mined, and this structural change may support future price increases.

Bitcoin adopts a new era

Since their launch in January 2024, exchange-traded funds (ETFs) in the United States have become a transformative force in the Bitcoin ecosystem. These financial products allow both retail and institutional giants to gain exposure to Bitcoin without directly holding it. Given that the supply of Bitcoin is fixed at 21 million coins, this mechanism has a significant impact on the supply and demand dynamics of Bitcoin.

However, it is estimated that approximately 3 to 6 million bitcoins are permanently lost due to lost private keys, the death of holders, or other irretrievable situations. This reduces the number of bitcoins actually in circulation to about 15 to 18 million, which is the cap on the total amount of bitcoins.

In this context, the ETF currently holds over 1.4 million BTC, which accounts for more than 7% of the maximum supply, or possibly over 10% of the circulating supply. This fact highlights how significant its growing dominance is.

Quarterly and Monthly Dynamics

Let's first take a general look at the health of the ETF.

The total amount of BTC held by all Bitcoin ETFs worldwide has exceeded 1.4 million. Even though this quarter has not yet ended, these ETFs have absorbed over 91,000 BTC. This is a strong quarter, second only to the influx of funds when the first ETFs launched at the end of last year and the rebound after the elections.

Looking at the monthly breakdown, the inflow of funds is even more remarkable:

• From May to August 2025: Continuous inflow, steadily withdrawing more Bitcoin from the market.
• In just August, it absorbed 41,000 BTC.
• Bitcoins mined daily: approximately 450, or about 14,000 per month.

In simple terms, this month's ETF inflow has exceeded the new supply entering the system through miners by more than three times. This absorption behavior has created persistent upward pressure on prices by tightening available liquidity, which may explain why we have been passively climbing to higher levels so far.

Capital Flow Analysis

Total Funds

From the perspective of cumulative ETF fund flows, the net inflow since January 2024 has reached an astonishing 54 billion dollars. Overall, it shows a "continuously rising" trend, with only brief pauses, indicating a sustained influx of passive funds.

Accumulated Traffic Difference

One of the most insightful custom indicators derived from this data is the cumulative flow divergence, which is an oscillating indicator used to measure the deviation of ETF fund flows from their long-term trend. This indicator considers these factors by shifting the values of non-trading days (such as weekends) forward and applying a 75-day moving average to smooth the data while avoiding excessive noise. The divergence is the difference between the daily fund flow and that average, thereby highlighting the acceleration or deceleration of net fund flows.

Data from March 2024 indicates that when the cumulative flow differential is above +8, it signifies that local prices are at a high level, with capital inflow exceeding normal levels, and local market sentiment is high. Conversely, when the cumulative flow differential is close to zero or negative, it marks a low point, at which there may be undervalued investment opportunities. This indicator essentially quantifies the behavior of retail investors and encourages contrarian action.

Daily Capital Flow

By closely observing the daily fund flows of ETFs, one can find that they correspond with the price movements of Bitcoin. During the uptrend period, inflows dominate, while during the pullback period, outflows surge. This correlation is evident: retail investors, who make up the main body of ETF participants, exhibit a behavior of chasing highs and cutting losses. They rush in during high prices due to FOMO, while they flee during low prices due to fear, uncertainty, and doubt.

In February 2025, the largest scale of capital outflow occurred, when Bitcoin dropped from $100,000 to $83,000, a decline of 17%, triggering panic selling. In contrast, during the rebound in November 2024 when Bitcoin rose from $70,000 to $90,000, the largest scale of capital inflow was observed. These patterns are real-time manifestations of behavioral finance principles, such as herd mentality and loss aversion.

From an educational perspective, these numbers

According to the provided reverse strategy:

• Buy heavily on red trading days when there is a significant outflow of funds.
• Reduce purchases on green trading days with a surge in capital inflows.

Things might just be that simple.

Traffic Volatility

Another layer of analysis I conducted is traffic volatility, which tracks the degree of daily traffic fluctuations relative to the historical average. The red area in the chart below indicates high volatility, which is typically consistent with significant price fluctuations.

Interestingly, during the recent drop of $10,000 from its historical high, volatility has remained at a low level. This reflects the maturity of Bitcoin: what once was a "crash" is now just a regular fluctuation. 3 to 5 years ago, a similar situation could have halved the price; today, with a market capitalization exceeding $2 trillion, such fluctuations are merely a minor episode.

Flow Weighted Average Price (FWAP)

Perhaps the most innovative indicator is the Flow-Weighted Average Price (FWAP), which is an experimental metric that weights the price of Bitcoin based on daily ETF flows. This indicator calculates the product of price and flow and the decremental cumulative sum of flows, emphasizing recent activity to reflect the market sentiment of current holders.

I began to view this as the ETF version of the "realized price"—a cornerstone of on-chain analysis that represents the average price at which all tokens last changed hands. The FWAP similarly attempts to estimate the average cost basis, but it is aimed at ETF investors.

Currently, the average cost price is $105,000, which is not much different from the realization price of short-term holders. This indicates that even during this pullback, ETF holders may still be in a profitable position. Recent history shows that when the price falls below this level, panic selling occurs, marking a local bottom under extreme pessimistic sentiment.

The potential of this indicator also extends to the derivatives sector, such as the FWAP-based oscillation indicator and risk indicators, so I will further refine these indicators in the coming weeks. But even now, it offers a unique perspective to examine the cost basis of institutions/retail investors, which I have never found elsewhere.

bullish signal due to supply tightening

From a more macro perspective, it is evident that ETFs are structurally absorbing Bitcoin supply at a pace far exceeding mining output, fundamentally reshaping the supply landscape. This "supply absorption" is bullish in the long term as it reduces the number of Bitcoins available for spot trading.

But this does not mean that it will only "keep rising forever." From the flow of funds, we can clearly see that when prices fall, investors are also willing to sell their coins (or stocks). So this is something I will pay close attention to.

These data also reveal some surprising insights. Although exchange-traded funds (ETFs) are quietly accumulating large amounts of Bitcoin, the fund flow data provides a compelling observation window into human psychology. The emerging indicators discussed here represent the cutting edge of fund flow-based Bitcoin analysis, and they will undoubtedly become key tools in my future accumulation strategies.

At the current pace, with the development of the market, these ETFs and the various indicators tracking them will only become more and more important.