Janice R. Andrews
Bitcoin exchange-traded funds (ETFs) are slowly becoming more popular investments in the fast-paced world of cryptocurrencies. Matthew Hougan, CEO of Bitwise Investments, said in October of last year that spot Bitcoin ETFs could get $55 billion in assets within five years. Less than a year later, the 10 newly cleared funds have almost reached that goal. As of late August, TrackInsight data shows that they had over $52 billion in assets.
” It’s clear I wasn’t being optimistic enough,” Hougan said. “This is going to be an area that we measure in hundreds of billions of dollars.” These numbers are a good start, but it may still be a long and difficult road to wider acceptance as a common asset.
Bitcoin ETFs: A Slow but Steady Rise
Bitcoin ETFs are financial instruments that follow the price of Bitcoin. They provide a safe way for buyers to invest in the risky cryptocurrency market. But the fact that Bitcoin is naturally volatile is still a problem for many standard buyers. There are people who think it’s more like investing in great art or rare drinks, while others think it’s more like investing in gold or commodities.
In August, Morgan Stanley, one of the biggest banks in the world, decided that its 15,000 financial advisers could actively recommend at least two new Bitcoin ETFs—the iShares Bitcoin Trust and the Fidelity Wise Origin Bitcoin Fund—to their clients. This was a big step toward wider acceptance. The way the banking sector deals with cryptocurrencies has changed a lot because of this ruling.
John Hoffman, head of distribution and partnerships at Grayscale Funds, said, “It is no longer acceptable not to do your research and work to understand these products.” This feeling shows how things are changing: now the risk is missing out on possible gains instead of investing in coins.
Small investors are in the lead
The main people putting money into Bitcoin ETFs are individual buyers. Institutional players have been slower to join the crowd. Some big organizations, like the investment board for the state of Wisconsin and some hedge funds, have made their positions in Bitcoin ETFs public. However, these are still the cases rather than the rule.
“The first $50 billion came from people who really understand Bitcoin,” said Sui Chung, CEO of CF Benchmarks, the company that made the Bitcoin index that many ETFs use. “Now we’re seeing the next stage: people on the risk committee at Morgan Stanley being dragged, kicking and screaming, to this decision when advisers can’t tell their clients ‘no’ any longer.”
But the attention that firms like Morgan Stanley got at first shows how far Bitcoin ETFs still need to go before they are commonplace in people’s financial accounts.
Why Bitcoin ETFs Are Going to Be Important
Even though progress has been made, experts warn that Bitcoin ETFs are still a long way from becoming a fully accepted part of the regular trading world. Andrew Lom, a fintech lawyer at Norton Rose Fulbright, said that the real test will be how flexible they are and how well they work with model portfolios that financial planners use to decide how to divide up assets.
“At some point, people start to think and talk about it as part of the normal investable universe,” Lom told us. “That’s when you’ll see the modern portfolio theory folks start considering what allocation to give it.”
A Less Clear Path Ahead for Ether ETFs
It’s still not clear what will happen with Ethereum (Ether) ETFs, but Bitcoin ETFs are steadily making progress. Since they started in July, Ether ETFs have grown their assets to almost $7 billion. This is a good amount, but it’s still less than what Bitcoin ETFs have. For example, the iShares Ethereum Trust hit $900 million in assets, which is a big deal but not quite as fast as Bitcoin ETFs’ growth.
In July, 21Shares launched a spot Ether ETF. “A lot of people were excited until the launch, and then it became a kind of’sell the news’ event,” said Adrian Fritz, head of research at the company.
Ether is different from Bitcoin in a lot of ways. It is often called “digital oil” instead of “digital gold,” which means that regular buyers may need more time and education to fully understand its potential.
People in the cryptoverse are keeping a close eye on Bitcoin ETFs to see if Ether and other cryptocurrencies will follow suit. If they do, it will make the world of digital assets more diverse.
