On-Chain Analysis Guide: ETFs

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Introduction to Crypto ETFs

The recent approval and launch of crypto ETFs in the US, beginning with spot Bitcoin ETFs in January 2024 marked a key milestone for the crypto industry and digital assets. For the longest time, the spot crypto ETF was seen as an endgame for many crypto investors, with its approval heralding the acceptance of crypto as a legitimate asset class by traditional finance.

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For the traditional finance world, the move was also historic, bridging the traditional financial markets with the digital asset world. Financial institutions, funds and retail investors which were previously limited in their access to crypto now had access to direct crypto investments via these spot crypto ETFs.

With the successful launch of spot Bitcoin and Ethereum ETFs in 2024, these ETFs attracted great interest from the broader investing world, seeing massive institutional inflows into both assets. In combination with the increased regulatory clarity under the Trump administration, the crypto ETFs have become one of the hottest topics of 2025.

This guide walks through the fundamentals of how ETFs work, why they are significant, and how to use on-chain analysis with Arkham Intelligence to monitor ETF inflows, outflows, and holdings and use the information to make more informed trading decisions. 

Summary

• A spot crypto ETF is an investment fund traded on traditional stock exchanges that directly holds a cryptocurrency, allowing investors to gain exposure without having to buy the digital asset themselves.
  
  
• Bitcoin and Ethereum ETFs work by holding the underlying assets 1:1, facilitated by custodian wallets which are verifiable on-chain.
  
  
• Arkham Intelligence allows anyone to track ETF wallet balances, inflows, and outflows, all in real-time.
  
  
• The gap between traditional finance and the crypto world is narrowing and the flow of capital in crypto markets has been permanently altered by ETFs.

What is an ETF?

An Exchange-Traded Fund (ETF) is an investment vehicle that trades on a stock exchange, just like the shares of companies that most investors are familiar with. However, instead of being a single company’s stock, an ETF represents ownership in a basket of assets such as stocks, bonds, commodities, or in this case, a single digital asset like Bitcoin or Ethereum.

A key point of difference in purchasing a share of an ETF as compared to buying a company’s stock, is that as an ETF share holder, you are not the owner of the underlying asset. Instead, you own shares of the fund that holds the underlying asset. This is different to buying shares in companies like Nvidia and Apple, where the shares you own are representative of direct ownership in the company.

For each of these ETFs, there are several key players involved, including:

• Issuer: The Issuer is the company creating the ETF, such as BlackRock, Vanguard, Fidelity and many more companies.
• Custodian: The Custodian is the company that holds the underlying asset for the fund. For the majority of crypto ETFs, Coinbase serves as their custodian.
• Authorized Participants: Authorized Participants are large, well-capitalized financial institutions that facilitate the creation and redemption of ETF shares, through working with the Issuers and Custodians.

How Does a Bitcoin ETF Work?

Bitcoin ETFs are backed 1:1 by actual BTC.

When investors invest into the ETF to create new shares, cash paid by the investor is sent to the Authorized Participant, which is transferred to the Issuer. The Issuer then swaps the cash for BTC, which is then stored securely by the Custodian. The ETF shares are then issued to the investor.

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When a redemption occurs, the inverse occurs. The Issuer sells BTC held with the Custodian for cash, which is transferred to the Authorized Participant, to be returned to the investor.

Since these ETFs hold real Bitcoin, the holdings of Bitcoin ETFs can be easily verified on-chain. Tracking wallets managed by the custodians of the respective Bitcoin ETFs therefore provides transparency to investors that their assets are truly backed by real Bitcoin.

How Does an Ethereum ETF Work?

Ethereum ETFs work much like Bitcoin ETFs, with shares backed directly by ETH held by a custodian. However, with Ethereum, staking adds a new layer of complexity.

Ethereum’s proof-of-stake (PoS) mechanism enables ETH holders to earn yield by staking their holdings to participate in network validation. While many ETH investors were excited by the prospects of yield-bearing ETH ETFs via staking, at the moment, the US Securities and Exchange Commission (SEC) has not yet approved staking for Ethereum ETFs.

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The other regulatory hurdle for Ethereum was its classification as an asset. For years, regulators debated whether Ethereum should be classified as a security or a commodity. Despite no explicit clarification from the SEC, the approval of Ethereum ETFs was seen to be an implicit classification of Ethereum as a commodity, just like Bitcoin.

When were Crypto ETFs Approved?

The spot Bitcoin ETF was first approved on January 10th, 2024, by the US SEC. The approval was a momentous decision for the crypto industry after more than 10 years of rejection since the Winklevoss twins submitted the first filing for a Bitcoin ETF, the Winklevoss Bitcoin Trust, in 2013.

Just 4 months after the initial Bitcoin ETF approval, the US SEC approved spot Ethereum ETFs through the acceptance of their 19b-4 filings.

The political catalyst which finally tipped the SEC towards the approval of spot crypto ETFs after years of dismissal came in Grayscale’s legal victory against the US SEC in August 2023, in which Grayscale questioned the difference in treatment of crypto futures ETFs and crypto spot ETFs. The lawsuit forced the US SEC into a corner, eventually forming the driving force for the US SEC to work with Bitcoin ETF issuers to finalize their filings, leading to their landmark approval in January 2024.

Why are Spot Crypto ETFs So Significant?

Although crypto trading has been around for more than a decade now, the spot crypto ETFs remain a hugely important turning point for the industry for many reasons. Spot crypto ETFs significantly increased the accessibility of crypto investment to the average retail investor. Spot crypto ETFs removed technical barriers to entry such as wallet setup and seed phrase management, which often paralyze new investors in the crypto space.

Moreover, the approval of the US SEC has provided the industry with the much needed legitimacy for an industry that, to much of the general public, seemed to only exist for crime and speculation. This was especially so with memories of the FTX bankruptcy and the Terra-Luna collapse still fresh in the minds of many retail investors.

Finally, but perhaps most importantly, the approval of spot crypto ETFs opened the doors of the crypto market to the multi-trillion dollar asset management industry, channeling a new wave of capital to grow the industry further.

Which are the Biggest ETFs?

At the moment, there are 11 approved issuers for spot crypto ETFs, of which all 11 offer spot Bitcoin ETFs but only 8 offer spot ETH ETFs as well. Some of the top issuers include:

1. BlackRock - $102.4B in AUM across IBIT and ETHA
2. Grayscale - $25B in AUM across GBTC, BTC, ETHE and ETH
3. Fidelity - $26.65B in AUM across FBTC and FETH

At the moment, BlackRock’s IBIT and Fidelity’s FBTC stand out as the dominant players among the spot crypto ETFs, leading their peers by a large margin. In fact, BlackRock’s IBIT became the fastest ETF ever to exceed $70B in AUM, crossing the historical milestone in just 341 days, or five times faster than the last record holder, GLD.

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Although GBTC does hold a significant AUM in their products, the majority of them reside under Grayscale’s older products, GBTC and ETHE, which for many years operated under a trust structure. This meant that it lacked the creations and redemption process which current spot crypto ETFs support. As such, these products often traded at significant deviations from their underlying spot holdings. Despite converting to an ETF structure in 2024, both GBTC and ETHE saw significant outflows.

The reason for the outflows was traders simply cashing in on a smart bet. For two years prior to the ETF conversion, it was possible to buy shares in these trusts for much less than the actual crypto inside them was worth. Traders bought these shares while they were discounted, assuming that the conversion to an ETF would close that price gap. When the conversion happened and the share price rose to match the crypto's true value, they sold to take their profits.

Ultimately, while traditional news sources and media often cover inflows and outflows from various spot crypto ETFs, the one source of truth remains the blockchain, which can be verified via on-chain analysis tools such as Arkham.

How To Keep Track of ETFs?

Using Arkham Intelligence, anyone can now keep track of the holdings of spot crypto ETFs.

1. Begin by searching for the respective entity you wish to track, for example: "BlackRock iShares Bitcoin Trust (IBIT)".

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2. Identify addresses linked to the respective ETF and assign custom labels to them as necessary.

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3. Users can also create custom alerts via Arkham to receive real-time notifications for movements in and out of the respective ETF addresses. Filters may also be used to narrow down to specific tokens, transaction values, chains and entities.

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How to Make Sense of Inflows and Outflows?

Crypto transfers on Arkham can be broken down into two main types: inflows and outflows.

Inflows represent new money entering an ETF product. On-chain, this translates to the custodian wallets acquiring more BTC or ETH to back the new shares. 

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Outflows, on the other hand, represent money leaving the ETF product.  On-chain, this is seen as the custodian wallets sending BTC or ETH out, usually to a centralized exchange, to be sold to meet investor redemptions.

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ETF providers typically report inflow and outflow data on the evening of the same day the trading occurs. For example, BlackRock generally releases flow data for its IBIT ETF after the market closes on a given day, occasionally the morning after. 

The on-chain movement of the crypto assets themselves, however, typically settles on a T+1 basis, or the following business day. So, if IBIT processed $200M in redemptions on Monday and reported it that evening, the corresponding crypto would be seen moving on-chain on Tuesday.

The value of on-chain data, therefore, is not necessarily in being the first signal, but in providing ultimate transparency. It allows anyone to publicly verify that the reported flows have settled and that the fund's holdings are what they claim to be.

Conclusion

The approval of Bitcoin and Ethereum ETFs has fundamentally altered the flow of capital in crypto markets. Spot crypto ETFs provide increased accessibility and regulatory legitimacy, bridging the gap between traditional finance and the digital asset space.

Thanks to on-chain analysis, anyone, even the average retail investor, is able to audit on-chain flows, and make more informed investment decisions. With tools like Arkham Intelligence, you can track ETF wallets, monitor inflows and outflows, and gain insights into billions of dollars moving through the blockchain.

Looking forward, ETFs are just the beginning for this new era for crypto. The gap between traditional finance and the crypto world is narrowing and it is not just crypto entering the TradFi world, the reverse is happening too. As tokenization continues to expand, everything from real estate to commodities could soon be represented and traded as digital assets on a blockchain.