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

Written by: On-Chain Mind

Compiled by: Shaw Golden Finance

There is a quietly emerging force that is 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've missed the most important piece of the puzzle.

In this article, we will examine the flow of funds in ETFs in detail, analyzing newly developed indicators at the forefront of fund flow analysis to help measure the impact of ETFs, and reflecting on the market dynamics and human behavior revealed by these fund flows.

Let's get started.

Overview of Key Points

Absorbing a large supply: Global Bitcoin ETFs currently hold over 1.4 million BTC, accounting for more than 7% of the total supply, which impacts scarcity and price stability.

Capital Flow Patterns and Psychology: The daily and cumulative capital flow situations reflect the behavior of investors, highlighting opportunities to buy when capital is flowing out and sell when capital is flowing in.

Custom indicators for deep analysis: New tools such as cumulative flow delta, flow volatility, and flow-weighted average price provide signals for market highs, lows, and investor cost basis.

Long-term bullish outlook: The number of Bitcoins purchased by ETFs has exceeded the number of newly mined ones, and this structural shift may support future price increases.

The New Era of Bitcoin Adoption

Since their launch in January 2024, exchange-traded funds (ETFs) in the U.S. 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 million to 6 million Bitcoins are permanently lost due to lost private keys, the death of holders, or other irretrievable circumstances. This reduces the actual circulating supply of Bitcoins to about 15 million to 18 million, which is the cap on the total supply of Bitcoins.

In this context, ETFs currently hold 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 the growing importance of their dominant position.

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 coins. Even though this quarter is not yet over, these ETFs have already absorbed over 91,000 BTC. This is a strong quarter, only second to the inflows when the first ETFs were launched at the end of last year and the rebound after the election.

Looking at the monthly breakdown, the influx of funds is even more noteworthy:

From May to August 2025: Continuous inflow, steadily withdrawing more Bitcoin from the market.

In just August, it absorbed 41,000 BTC.

Bitcoin mined daily: approximately 450, or about 14,000 per month.

In simple terms, the inflow of funds into ETFs this month has exceeded the new supply entering the system through miners by three times. This absorption behavior has created sustained upward pressure on prices by tightening the available liquidity, which may explain why we have been passively and gradually climbing to higher levels so far.

Fund Flow Analysis

Cumulative Capital Flow

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

Accumulated Flow 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 capital flows from their long-term trend. This indicator accounts for these factors by shifting the values of non-trading days (such as weekends) forward and applies a 75-day moving average to smooth the data while avoiding excessive noise. The divergence is the difference between daily capital flows and that average, thereby highlighting the acceleration or deceleration of net capital flow.

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

Daily Fund Flow

By carefully observing the capital flow of daily ETFs, one can find that it corresponds with the price trend of Bitcoin. During an upward trend, capital inflow dominates, while during a pullback, capital outflow surges. This correlation is evident: retail investors, who constitute the main body of ETF participants, exhibit a behavior of chasing highs and cutting losses. They flock in during highs due to FOMO (Fear of Missing Out) and leave in droves during lows due to fear, uncertainty, and doubt.

In February 2025, there was a massive outflow of funds, as 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, there was a significant inflow of funds. These patterns are real-time manifestations of behavioral finance principles, such as herd mentality and loss aversion.

From an educational perspective, this data provides a reverse strategy:

Buy heavily on red trading days when a large amount of capital is flowing out.

Reduce purchases on green trading days when capital inflows surge.

Things might 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 decline of $10,000 from its historical high, volatility has remained at a low level. This reflects the maturity of Bitcoin: what was once considered a "crash" is now merely a regular fluctuation. Three to five years ago, a similar market situation could have halved the price; however, today, with a market cap exceeding $2 trillion, such fluctuations are just 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 decreasing cumulative sum of flows, emphasizing recent activity to reflect the market sentiment of current holders.

I started to regard this as the ETF version of "realized price"—a cornerstone of on-chain analysis that represents the average price at which all tokens last changed hands. 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 far from the realization price for 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 pessimism.

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

Bullish signal of supply tightening

From a more macro perspective, it is evident that ETFs are structurally absorbing Bitcoin supply at a pace that far exceeds 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 "always rise." 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 absorbing a large amount of Bitcoin, the fund flow data provides a compelling observational window into human psychology. The emerging indicators discussed here represent the forefront of fund flow-based Bitcoin analysis, and they will undoubtedly become key tools in my future accumulation strategies.

At the current speed, with the development of the market, these ETFs and the various indicators that track them will only become increasingly important.