Cryptoverse: Bitcoin ETFs Inch Closer to Mainstream with $50 Billion Growth
Matthew Hougan, CEO of Bitwise Investments, had initially predicted that spot bitcoin exchange-traded funds (ETFs) would amass $55 billion in assets within their first five years. Fast forward to late August this year, just eight months post their launch, and the 10 newly approved ETFs by U.S. regulators collectively held over $52 billion in assets, as per data from TrackInsight.
Reflecting on his earlier forecast, Hougan humorously remarked, “Clearly, I wasn’t being bullish enough. This is going to be an area that we measure in hundreds of billions of dollars.” However, the future trajectory of these funds remains uncertain. These ETFs track the volatile price of bitcoin, a cryptocurrency that has experienced significant fluctuations since its inception 16 years ago, marking the beginning of the crypto era. Some market participants liken bitcoin to art or fine wine rather than traditional assets like gold and commodities, attributing its volatility and risk to its speculative nature.
The journey towards widespread acceptance as a mainstream asset may be gradual and convoluted. A significant milestone was reached in August when Morgan Stanley permitted its 15,000 financial advisers to actively recommend two new bitcoin ETFs – the iShares Bitcoin Trust and the Fidelity Wise Origin Bitcoin Fund – to clients. John Hoffman, head of distribution and partnerships at Grayscale Funds, emphasized the importance of conducting due diligence and understanding these products in the current landscape, highlighting the shift in risk for wealth management professionals towards the risk of not embracing these opportunities.
The influx of funds into the new ETFs has been predominantly driven by retail investors, with only a few large institutions publicly disclosing their positions in regulatory filings. Sui Chung, CEO of CF Benchmarks, noted, “The first 50 billion has come from people who understand bitcoin well,” signaling a transition towards broader investor participation. The attention garnered by early adopters like Morgan Stanley underscores the ground that crypto ETFs must cover to integrate into the investment mainstream.
Andrew Lom, an attorney at Norton Rose Fulbright, emphasized that the liquidity of these ETFs will be a critical factor in determining their mainstream status. As these products potentially become part of the normal investable universe, considerations around allocation within modern portfolio theory frameworks may arise, though this evolution could take several months to materialize.
While bitcoin ETFs are progressing towards mainstream recognition, the outlook for spot ethereum ETFs is less clear. A month following their launch, assets in the ether group totaled nearly $7 billion, with BlackRock’s iShares Ethereum Trust amassing $900 million in assets. However, compared to bitcoin products, ether ETFs have faced a more subdued market response post-launch, prompting discussions around the distinctive nature of ether as a cryptocurrency.
Chung likened ethereum to “digital oil,” highlighting its utility in facilitating transactions across digital networks. The unique characteristics of ether necessitate deeper research and due diligence from both regulators and investors. As the market matures, education and time may fuel increased enthusiasm for ether ETFs, though the sales process for these products is expected to be more intricate and lengthy.
