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

Source: On-Chain Mind, Compiled by Shaw Jinse Finance

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

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

Let's get started.

Key Overview

• Absorption of 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 situation reflects investor behavior, highlighting opportunities to buy when funds are flowing out and sell when funds are flowing in.
• Custom Indicators for In-Depth Analysis: New tools such as cumulative flow difference, 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 surpassed the amount mined, 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 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 Bitcoin's supply is capped 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 unrecoverable situations. This reduces the actual circulating amount of bitcoins to about 15 to 18 million, which is the cap on the total supply of bitcoins.

Against this backdrop, 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, highlighting the significance of their growing dominance.

Quarterly and Monthly Dynamics

Let's first take an overall look at the health of ETFs.

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

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

• From May to August 2025: Continuous inflow, gradually withdrawing more Bitcoin from the market.
• In just August, it absorbed 41,000 BTC.
• Daily mined Bitcoin: 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 more than three times. This absorption behavior has put continuous upward pressure on prices by tightening available liquidity, which may explain why we have been passively and gradually climbing to high levels so far.

Capital 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 "continuously rising" trend, with only brief pauses, indicating a steady 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 fund 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 applying a 75-day moving average to smooth the data while avoiding excessive noise. The divergence is the difference between the daily fund flows and that average, thereby highlighting the acceleration or deceleration of net fund flows.

Data from March 2024 indicates that when the cumulative flow difference is above +8, it signifies 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 approaches zero or is 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 actions.

Daily Capital Flow

By closely observing the daily fund flows of ETFs, one can find that they echo the price trends of Bitcoin. During bullish periods, inflows dominate, while during corrections, 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 at high prices due to FOMO and flee at low prices due to fear, uncertainty, and doubt.

In February 2025, there was the largest outflow of funds, during which Bitcoin fell from $100,000 to $83,000, a decline of 17%, triggering panic selling. Conversely, in November 2024, during the rebound when Bitcoin rose from $70,000 to $90,000, there was the largest 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 there are significant outflows of funds.
• 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 areas in the chart below indicate high volatility, which often corresponds 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 was once a "plunge" is now just regular fluctuation. Three to five years ago, a similar market condition 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 indicator that weights the price of Bitcoin against daily ETF flows. This indicator calculates the product of price and flow and the declining cumulative sum of flows, emphasizing recent activity to reflect the market sentiment of current holders.

I began to view this as the "realized price" in the ETF version - 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 much different from the price at which short-term holders break even. 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 tends to occur, marking a local bottom under extreme pessimistic sentiment.

The potential of this indicator also extends to the derivatives field, such as 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 anywhere else.

Bullish Signals of 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 run as it reduces the number of Bitcoins available for spot trading.

But this does not mean that it will only "rise forever." From the capital flow, we can clearly see that when the price drops, investors are also willing to sell their coins (or stocks). So this is a point I will closely monitor.

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

At the current pace, as the market develops, these ETFs and the various indicators that track them will only become increasingly important.