Bitcoin dominance shifts! Crypto exchanges lose ground as ETFs become the new king with $5 billion in daily trading

Glassnode’s latest report points out that US spot ETFs account for over 5% of Bitcoin’s cumulative net inflows, making institutional investors a new source of demand. Bitcoin ETF daily trading volume has grown from $1 billion at launch to consistently exceeding $5 billion, and even surpassing $9 billion during periods of heightened volatility. The 12 funds now hold about 1.36 million Bitcoins, nearly 7% of the circulating supply.

ETF Daily Trading Volume of $5 Billion Disrupts the Price Discovery Mechanism

(Source: Glassnode)

ETF trading volume has grown from about $1 billion per day at launch to consistently exceeding $5 billion. In fact, during periods of heightened market volatility, the sector’s trading volume peak has even surpassed $9 billion. These figures mark a fundamental shift in the power structure of the Bitcoin market. Traditionally, native CEXs dominated price discovery, with their order book depth and trading volume determining the real-time price of Bitcoin.

Now, Wall Street’s ETF trading volume has matched or even surpassed these exchanges. When BlackRock’s IBIT fund reached a single-day record of $6.9 billion in trading following the October deleveraging event, it highlighted how a single product can influence intraday liquidity and market sentiment. Trading of this magnitude means ETFs are no longer passive products tracking spot prices, but have become an active force influencing prices.

These capital flows have become a structural feature of the market, especially pronounced at inflection points—ETF turnover accelerates at the start of rallies and slows during pullbacks. This pattern underscores the extent to which Wall Street trading volume now determines price discovery. When ETFs see large inflows, authorized participants must buy Bitcoin from the spot market to create ETF shares, and this structural buying pushes prices up. Conversely, when ETFs experience redemptions, Bitcoin is released back into the market, creating selling pressure.

The introduction of regulated, broker-accessible Bitcoin exposure has led to a measurable shift in liquidity behavior. This marks a quiet transfer of market power from native crypto exchanges to regulated intermediaries, whose capital flows are increasingly dictating Bitcoin’s cyclical rhythm. For traders, this means they must adjust their data-tracking focus: whereas in the past they watched Binance trading volume and funding rates, now they must monitor ETFs’ daily net inflows and outflows.

The Shift in Power of Bitcoin’s Price Discovery Mechanism

Before 2024: Major CEXs dominated, with daily trading volume of $20-30 billion

After 2024: ETFs with daily trading of $5-9 billion, CME futures with $20.6 billion open interest, institutionally dominated

This shift in power is irreversible. Once institutional investors get used to participating in the Bitcoin market via ETFs and CME futures, they will not return to native exchanges. This structural change has transformed Bitcoin from a “crypto-native asset” to an “institutional-grade financial product,” which is a sign of maturity but also means a relative decline in retail influence.

The Basis Trading Linkage Between CME Futures and ETFs

(Source: Glassnode)

Glassnode points out that institutional investors often combine ETF inflows with short futures positions to implement basis trading strategies, profiting from the spread between spot and futures markets. CME currently has over $20.6 billion in open interest, accounting for about 30% of the global total. The strong correlation between CME open interest and US ETF AUM is noteworthy.

The logic of basis trading is: when futures prices are higher than spot prices (positive basis), institutions can buy spot ETFs while shorting CME futures, locking in risk-free profits. As both ETF and CME futures scale up in tandem, this arbitrage strategy has become more common and efficient. It is estimated that billions of dollars may currently be deployed in such strategies.

This creates a feedback loop—ETF demand, futures hedging, and yield strategies reinforce each other, leading to a market structure completely different from past retail-driven cycles. In the retail-dominated era, prices were mainly driven by sentiment and speculation, resulting in severe and unpredictable volatility. In the institution-dominated era, prices are more driven by systematic arbitrage strategies and risk management processes, with lower volatility but more complex structures.

In practice, these ETFs have established a dual-layer Bitcoin market. On-chain settlement continues to support the asset’s monetary policy and security model, while off-chain financial products (such as ETFs, CME futures, and brokerage accounts) now account for the majority of trading volume and liquidity. This institutional layer operates at scale and speed, with trading volumes that can surpass those of the native spot exchanges that defined Bitcoin’s early history.

This dual-layer structure is both an opportunity and a challenge for Bitcoin’s long-term development. The opportunity lies in the deep liquidity and mainstream recognition brought by institutional participation; the challenge is that Bitcoin may become over-financialized, losing its original purpose of decentralization and peer-to-peer transactions.

The Real Significance of the 30% Plunge in On-Chain Active Entities

This migration to custodial and brokerage infrastructure is evident in network behavior. Glassnode notes that one of the most effective metrics for measuring Bitcoin adoption—active entities—shows a structural decline in on-chain participation since ETFs were approved. The number of independent entities transacting daily has dropped from about 240,000 to 170,000, below the previous cycle’s low, a decrease of about 29%.

At first glance, this data appears concerning, suggesting a decline in actual Bitcoin usage. However, Glassnode interprets the drop in active entities not as a sign of weakening adoption, but rather as a redistribution of activity to off-chain venues that now dominate user interaction. Transactions that previously took place via on-chain transfers or exchange deposits are now executed through broker-routed ETF orders.

This interpretation highlights the difficulty of measuring Bitcoin adoption. Traditional on-chain metrics such as active addresses and transaction volume may lose some effectiveness in the ETF era, as much of the activity has migrated off-chain. An investor buying FBTC through a Fidelity brokerage account will leave no trace on-chain, but is in fact a new Bitcoin adopter.

Retail investors who previously traded Bitcoin via centralized exchanges are increasingly using brokerage platforms, while institutional investors rely on ETF creation and redemption instead of native spot markets. This migration affects different groups in different ways. For retail, ETFs offer a more convenient and secure investment channel, eliminating the need to handle private keys and exchange risks. For institutions, ETFs provide a compliant framework and custodial assurance, meeting their internal policy requirements.

However, this migration also comes at the cost of decreased decentralization. When large amounts of Bitcoin are locked in ETF custodians, these Bitcoins are effectively controlled by a handful of institutions. Although ETF share holders legally own the Bitcoin, actual private keys are held by custodians such as CEXs. This concentration runs counter to Bitcoin’s original vision of “self-custody for everyone.”

How Retail Investors Can Survive in an Institutionally Dominated New Market

The cumulative effect of these changes is that institutions have become the main force behind Bitcoin’s liquidity, capital flows, and price formation. Spot ETFs have simplified exposure, integrated Bitcoin into traditional investment portfolio workflows, and created a market environment in which Wall Street trading volumes and CME positions now influence asset trends as much as native crypto activity.

Bitcoin remains a decentralized monetary system, with its core consensus independent of these structures. However, the mechanism by which most investors gain exposure has changed. Today, BTC ETFs account for a significant share of supply, influence marginal demand, and have consolidated the largest pool of regulated liquidity the asset has ever seen. As a result, they not only enable institutional participation but increasingly allow institutions to dominate the leading digital asset market structure.

For retail traders, this new market structure requires a fundamental shift in their information-tracking methods. In the past, tracking Binance funding rates, exchange balance changes, and whale address movements could give a pulse on the market. Now, it is necessary to add monitoring of daily ETF net inflows and outflows, CME open interest changes, and institutional position reports. Platforms such as SoSoValue and Farside Investors, which provide ETF flow data, have become essential tools for Bitcoin traders.