The Bitcoin ETF Boom: What's Next?
The launch of the first spot bitcoin ETFs in the US has been a historic moment for the cryptocurrency industry and the ETF market. In less than two weeks, these funds have attracted more than $3.2 billion in assets, making them the fastest-growing ETF launch ever. But this is just the beginning of a new era for bitcoin and its investors. What are the next steps for these innovative products and who will benefit from them?
Spot bitcoin ETFs are different from the previous bitcoin ETFs that were based on futures contracts. These funds actually hold bitcoin in custody and track its price directly, without the need for rolling over contracts or paying premiums. This makes them more efficient, transparent and cost-effective for investors who want exposure to the digital asset.
The first spot bitcoin ETFs were approved by the SEC on January 10, 2024, after more than a decade of attempts by various issuers. The next day, 11 funds debuted on the market, sparking a fierce competition on fees, marketing and distribution. The iShares Bitcoin Trust (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC) emerged as the leaders, with more than $1 billion each in assets. Meanwhile, the Grayscale Bitcoin Trust ETF (GBTC), which converted from a trust to an ETF, saw massive outflows due to its high fee of 1.5%.
The initial success of these funds shows that there is a huge demand for bitcoin among retail and institutional investors who prefer the convenience and security of an ETF wrapper. However, there are still some challenges and opportunities ahead for these funds and their issuers.
One of the main challenges is to get access to more distribution platforms and broker-dealers, especially those that cater to financial advisors and institutional clients. Some of the major players, such as Vanguard, have decided not to offer these funds on their platforms, citing regulatory and operational risks. However, Matt Hougan, chief investment officer of Bitwise Asset Management, expects that Vanguard and others will eventually change their minds as they see the growing popularity and acceptance of bitcoin.
Another challenge is to educate and convince potential investors about the benefits and risks of investing in bitcoin through an ETF. Some investors may be fast followers, while others may be more cautious or skeptical. Hougan predicts that most financial advisors who allocate to crypto will do so at a low level, between 1% and 5% of their portfolios. David LaValle, global head of ETFs at Grayscale, said that fees are not the only factor that investors look at, but also liquidity, track record and reputation of the issuers.
On the other hand, there are also some exciting opportunities for these funds and their issuers to grow and innovate. One of them is the possibility of launching an ethereum ETF, which would be another milestone for the crypto industry. The SEC has set a deadline of May 2024 to approve or reject several applications for an ethereum ETF, and the odds are 50/50, according to Hougan, LaValle and Steve Kurz, global head of asset management at Galaxy.
Another opportunity is to expand the product range and offer more diversified and thematic crypto ETFs, such as those that focus on DeFi, NFTs or metaverse. These funds could appeal to more niche or sophisticated investors who want to access different aspects or segments of the crypto ecosystem.
The bottom line is that the launch of spot bitcoin ETFs has been a game-changer for both the crypto industry and the ETF market. These funds have opened the door for more mainstream adoption and innovation in this space, and we can expect more developments and surprises in the near future.