Heading into 2024, spot bitcoin ETFs were on the brink of official SEC approval, and while there appeared to be pent-up demand from investors, the magnitude of that interest was unclear. On the three-month anniversary of the launch of spot bitcoin ETFs in the US, the market's verdict is clear: these products have been extremely successful in terms of asset accumulation.
As shown in Table 1, as of April 10, 2024, there were 11 spot bitcoin ETFs listed in the U.S. Nine of these spot ETFs were launched as new funds on January 11, 2024. The other two were existing products that were converted in spot ETFs – Grayscale Bitcoin Trust (GBTC) which previously held spot bitcoin in a non-ETF trust structure, and Hashdex Bitcoin ETF (DEFI) which previously held bitcoin futures. The nine unconverted ETFs received $27.5 billion in total net new inflows from their inception through April 11, 2024. These inflows were offset by $15.6 billion in outflows from converted GBTC, which has a higher fee compared to its competitors. These numbers clearly show that the instant ETFs have brought new capital to the category and not all the money in the new ETFs is from investors reallocating from GBTC. In total, as of April 10, 2024, US spot bitcoin ETFs had a substantial $58 billion in net assets and net inflows of $11.9 billion, after accounting for GBTC outflows.
The winner-takes-more industry model repeats itself
While the spot Bitcoin ETF category has clearly grown dramatically, a few issuers account for a large portion of the inflows. This is a repeat of the “take the most winners” dynamic that has characterized the ETF industry, particularly in the U.S. As shown in Figure 1, Blackrock has taken just over half of the $27.5 billion in net inflows into unconverted ETFs. bitcoins. . Fidelity also had significant success with a 29% share of these net flows, with ARK / 21 Shares, Bitwise and Van Eck rounding out the top five.
The SEC approval process resulted in a unique situation where multiple providers launched virtually identical products on the same date, creating a closely watched foot race among issuers. The dominant start by Blackrock and Fidelity underscores the importance of scale, distribution and branding in ETF asset sourcing.
Growing Crypto ETF Ecosystem
The launch of spot bitcoin ETFs was an important event in the ongoing development of the crypto fund ecosystem in the US. Highlights in that journey in the US include the launch of the Grayscale Bitcoin Trust in 2013 and the launch of the ProShares Bitcoin Strategy ETF (BITO), The first futures-based bitcoin ETF, in 2021. Since the launch of the spot products, there have been other recent additions to the crypto fund ecosystem, including the following launches:
- Roundhill Bitcoin Covered Call Strategy ETF (YBTC), which seeks to generate monthly income through a covered call strategy on bitcoin. ETFs using call writing have been successful in the equity space, and it will be interesting to see their adoption in the crypto space.
- ProShares Ultra Bitcoin ETF (BITU) and ProShares UltraShort Bitcoin ETF (SBIT), which add to the list of leveraged and inverse ETFs in the crypto space.
- Global X Bitcoin Trend Strategy ETF, which adjusts its exposure to Bitcoin futures based on price trends.
Additionally, issuers have filed for Ethereum spot ETFs, which are currently under review with the SEC. All of these are indications that the ecosystem of crypto-related fund products is likely to expand. The category is also likely to get a boost from the upcoming halving event in 2024, which will reduce the rate at which new bitcoin is released into circulation. Combined with continued demand for spot ETFs, this could provide additional support for bitcoin prices.
Long-term trajectory: Need for a dominant use case
The strong start in spot adoption of bitcoin ETFs represents an invigorating boost for the cryptocurrency market, but the ultimate trajectory for these products will depend on the long-term use cases for the underlying cryptocurrencies. Through the evolution of this technology, numerous potential use cases have been explored. The first was that bitcoin could help bypass the traditional financial regulatory system. However, there is a certain irony in that it is the regulation of bitcoin-related products that resulted in a filling of the space after the recent 'crypto winter'. This development, along with the recent prosecution of fraud in the unregulated realms of cryptocurrency trading, indicates that the idea of completely bypassing the traditional crypto financial system is now a thing of the past.
Another possibility is that of crypto as a portfolio diversifier. However, this idea came under pressure in 2022 when bitcoin fell by 64% and failed to provide a cushion against declines in equity and bond markets. Other potential applications include bitcoin as a store of value ('digital gold'), as a more widely accepted form of payment, or as a facilitating technology in the tokenization of physical or intangible assets. Crypto technology is still in its infancy and new applications may emerge if the asset is held more widely, but ultimately secular demand for spot crypto ETFs will depend on the emergence of some widely adopted use cases for cryptocurrencies basic.
Aniket Ullal is VP, ETF Data and Analytics for CFRA, one of the world's largest providers of independent investment research. Aniket founded First Bridge Data, a leading source for global ETF data and analytics that was acquired by CFRA in August 2019.