As we enter 2024, spot Bitcoin ETFs are on the verge of receiving formal SEC approval, and while investor demand appears to be pent-up, the extent of this interest is unclear. On the three-month anniversary of the launch of U.S. spot Bitcoin ETFs, the market’s conclusion is that these products have been a huge success in asset aggregation.
As shown in Table 1, as of April 10, 2024, there are 11 spot Bitcoin ETFs listed in the United States, of which 9 spot ETFs were launched as new funds on January 11, 2024. The other two are existing products that converted to 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. Since their launch through April 11, 2024, these nine unconverted ETFs have attracted a staggering $27.5 billion in net new flows. These inflows were offset by a $15.6 billion outflow from converted GBTC, which had higher fees relative to its competitors. These numbers make it clear that spot ETFs have brought new money into the category, and not all of the money going into new ETFs has come from investors reallocating money from GBTC. Overall, U.S. spot Bitcoin ETFs had net assets of $58 billion as of April 10, 2024, with net inflows reaching $11.9 billion after accounting for GBTC outflows.
The “winner takes all” industrial structure reappears
While the spot Bitcoin ETF category is clearly growing, a handful of issuers account for a large portion of inflows. This is a re-enactment of the “winner takes all” dynamic that is endemic to the ETF industry, especially in the United States. As shown in Figure 1, BlackRock absorbed just over half of the $27.5 billion in net inflows into the Unconverted Spot Bitcoin ETF. . Fidelity was also hugely successful, accounting for 29% of 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 nearly identical products on the same day, sparking a high-profile competition among issuers. Blackrock and Fidelity’s lead underscores the importance of scale, distribution and brand in the aggregation of ETF assets.
The Development of the Crypto ETF Ecosystem
The launch of the spot Bitcoin ETF is a major event in the continued growth of the U.S. crypto fund ecosystem. Key milestones in this journey in the United States 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, due to launch in 2021. Since the launch of spot products, the crypto fund ecosystem has recently added other products, including the following:
- The Roundhill Bitcoin Covered Call Strategy ETF (YBTC) is designed to generate monthly income through a Bitcoin covered call strategy. ETFs that use call writing have been successful in the equity space, and it will be interesting to watch their adoption in the cryptocurrency space.
- ProShares Ultra Bitcoin ETF (BITU) and ProShares UltraShort Bitcoin ETF (SBIT) add to the list of leveraged and inverse ETFs in the cryptocurrency space.
- The Global X Bitcoin Trend Strategy ETF adjusts its exposure to Bitcoin futures based on price trends.
In addition, the issuer has applied for an Ethereum ETF spot and is currently undergoing SEC review. All of this suggests that the ecosystem of crypto-related fund products is likely to expand. The category may also be boosted by the upcoming halving event in 2024, which will reduce the rate at which new Bitcoin enters circulation. Combined with continued demand for spot ETFs, this could provide additional support for Bitcoin prices.
Long-term trajectory: Need for dominant use cases
The strong start to Bitcoin ETF spot adoption represents strong growth for the cryptocurrency market, but the ultimate trajectory of these products will depend on the long-term use cases of the underlying cryptocurrency. Through the development of this technology, a variety of possible use cases have been considered. First, Bitcoin can help bypass traditional financial regulatory systems. There is a certain irony, however, in that it was the regulation of Bitcoin-related products that led to the stimulus in the space following the recent “crypto winter.” This development, coupled with recent fraud-related prosecutions in the unregulated world of cryptocurrency trading, suggests that the idea of cryptocurrencies bypassing the traditional financial system entirely is now a thing of the past.
Another possibility is cryptocurrencies as a portfolio diversifier. However, the idea came under pressure in 2022, when Bitcoin fell 64%, failing to stabilize losses in stock 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 for the tokenization of physical or intangible assets. Crypto is still in its infancy, and new applications may emerge if the asset becomes more widely held, but ultimately long-term demand for spot crypto ETFs will depend on the emergence of some widely adopted use cases for the underlying cryptocurrency.
Aniket Ullal is vice president of ETF data and analytics at CFRA, one of the world’s largest independent providers of investment research. Aniket founded First Bridge Data, a leading source of global ETF data and analysis, which was acquired by CFRA in August 2019.
