Going into 2024, spot bitcoin ETFs were on the verge of formal SEC approval, and while there appeared to be pent-up investor demand, the magnitude of that interest was unclear. On the three-month anniversary of the launch of spot bitcoin ETFs in the U.S., the market verdict is in: these products have been immensely successful in terms of asset gathering.
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 Jan 11, 2024. The other two were existing products that converted to spot ETFs–the Grayscale Bitcoin Trust (GBTC) which previously held spot bitcoin in a non-ETF trust structure, and the Hashdex Bitcoin ETF (DEFI) which earlier held bitcoin futures. The nine non-converted ETFs took in a staggering $27.5 billion in aggregate net new flows since their launch through April 11, 2024. These inflows have been offset by outflows of $15.6 billion from the converted GBTC, which has a higher fee relative to its competitors. These numbers clearly indicate that the spot ETFs have brought in fresh capital into the category, and not all the money into the new ETFs is from investors reallocating from GBTC. In aggregate, as of April 10, 2024, spot bitcoin ETFs in the U.S. had a significant $58 billion in net assets and net inflows of $11.9 billion after accounting for the GBTC outflows.
The ‘Winner Take Most’ Industry Pattern Recurs
While the spot bitcoin ETF category has clearly grown dramatically, a few issuers account for a large share of the inflows. This is a recurrence of the "winner take most" dynamic that has characterized the ETF industry, particularly in the U.S. As shown in Figure 1, Blackrock has taken in just over half of the $27.5 billion net inflows into the non-converted spot bitcoin ETFs. Fidelity has also had significant success with 29% share of those 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, setting up a keenly watched footrace between issuers. The dominant start by Blackrock and Fidelity underscores the importance of scale, distribution and brand in ETF asset gathering.
Growth of the Crypto ETF ecosystem
The launch of the spot bitcoin ETFs was a significant event in the continued development of the crypto fund ecosystem in the U.S. Key milestones in that journey in the U.S. 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:
- The Roundhill Bitcoin Covered Call Strategy ETF (YBTC), which seeks to generate monthly income through a covered call strategy on bitcoin. ETFs employing call writing have been successful in the equity space, and it will be interesting to watch their adoption in the crypto space.
- The 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.
- The Global X Bitcoin Trend Strategy ETF, which adjusts its exposure to Bitcoin futures based on price trends.
In addition, issuers have filed for spot Ethereum ETFs, which are currently under review with the SEC. All of these are indicators 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. In combination with continued demand for the spot ETFs, that could provide additional support to bitcoin prices.
Long-Term Trajectory: Need for a Dominant Use Case
The strong start in spot bitcoin ETF adoption represents an invigorating boost to 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, multiple possible use cases have been considered. 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 fillip to the space after the recent ‘crypto winter’. That development, along with the recent fraud-related prosecution in unregulated spheres of cryptocurrency trading, indicates that the idea of crypto completely bypassing the traditional financial system is now in the past.
Another possibility is that of crypto as a portfolio diversifier. This idea, however, came under pressure in 2022 when bitcoin was down 64% and failed to provide a ballast against declines in the 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 could emerge if the asset is more widely held, but ultimately the secular demand for spot crypto ETFs will depend on the emergence of a few widely adopted use cases for the underlying cryptocurrencies.
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.