Bitcoin spot ETFs have been extremely popular since their launch, fueling a market frenzy and pushing the price of the cryptocurrency to near all-time highs.
Investors have poured into the funds at a historic pace since their launch on Jan. 11, swelling the total assets of the 10 U.S. bitcoin spot ETFs on the market to nearly $50 billion.
BlackRock’s iShares Bitcoin Trust surpassed $10 billion in assets on Thursday, becoming the fastest new ETF ever to reach that milestone. Fidelity’s fund, which now has more than $6 billion in assets, is already the asset manager’s third-largest ETF and has accounted for the majority of net ETF inflows this year.
Todd Rosenbluth, head of research at VettaFi, said:
"It's a sustained wave of demand. These products were strong when they came on the market and they have remained strong."
These funds allow everyday investors to invest in digital assets directly through them, without having to go to a cryptocurrency exchange or invest in Bitcoin through futures contracts.
Some analysts expected the initial huge influx of funds to slow down, but the pace of inflows has accelerated in recent weeks as the price of Bitcoin approaches record levels.
Bitcoin was trading over $67,000 on Monday afternoon, just shy of its record of $68,990.90 set in November 2021. Bitcoin will only approach $40,000 in 2023, having hovered around $23,000 a year ago.
Many analysts attribute Bitcoin's rise in the second half of last year to expectations that a Bitcoin spot ETF would be approved. They say that now investors' pursuit of funds has driven more bullish sentiment in addition to creating new demand. Rosenbluth added, "This is one of the rare cases where the price of the underlying asset is linked to the fund. Bitcoin's performance is difficult to quantify, but its performance is closely related to people's hopes for its increased availability. It's a cyclical benefit."
Can market demand increase further?
BlackRock's Bitcoin spot ETF has surpassed many other ETFs. Data shows that among the more than 3,000 ETFs listed in the United States, only about 4% have assets of more than US$10 billion.
In January of this year, nine Bitcoin funds were newly listed, and Grayscale's Bitcoin Trust was converted into an ETF with nearly $30 billion in existing assets, namely GBTC, on the same day as the other funds were launched.
Investors have since pulled more than $8 billion from the fund because it charges much higher fees than rivals. If GBTC’s average assets remain near current levels, a 1.5% annual fee would generate about $400 million in annual revenue for the asset manager.
BlackRock charges just 0.25% after its so-called “promotional period,” while most smaller asset managers charge even less.
Of course, not all asset managers believe these products are suitable for individual investors. Vanguard Group has said it does not plan to offer a Bitcoin ETF and will not provide access to cryptocurrencies on its brokerage platform. The asset management giant called Bitcoin "more of a speculation than an investment" in a recent blog post.
Registered investment advisors have enormous influence in directing money flows to ETFs, but they currently have limited access to Bitcoin spot ETF funds. Morgan Stanley, Bank of America Merrill Lynch, UBS and Wells Fargo's wealth management platforms offer Bitcoin funds on an unsolicited basis, meaning advisors cannot actively market Bitcoin funds to clients, but can purchase Bitcoin spot ETFs for clients who request them.
If this changes, analysts expect more money to flow into Bitcoin spot ETFs. Aniket Ullal, director of ETF data and analytics at CFRA Research, said:
“Advisor platforms have been relatively absent from this asset class, but this may now change and we expect demand to increase.”
The market is surprisingly comfortable with Bitcoin ETFs
Some new Bitcoin funds are going head-to-head with industry heavyweights in other asset classes in attracting new money. BlackRock's Bitcoin spot ETF ranked third in the U.S. ETF "money-attracting list" in February, surpassing the S&P 500 index ETF by a narrow margin.
Fidelity's Bitcoin spot ETF ranked eighth, and the most popular funds in February were Vanguard Group's S&P 500 Index Fund and its Information Technology Fund.
Data on who is buying these funds is scarce. Wall Street will know more after big investors report their fund holdings in quarterly disclosures.
However, the trading activity of Bitcoin spot ETFs has recently accelerated. According to foreign media reports, about $8 billion of trading volume was recorded last Wednesday, which was the largest trading day so far.
“It’s amazing how quickly investors have embraced these new funds. It’s a very unusual situation,” said Ullal, who said ETFs typically take longer to attract assets because they have to wait for different advisory platforms to list them.
The article is forwarded from: Jinshi Data
