Last week, the US Securities and Exchange Commission (SEC) finally approved the first spot bitcoin exchange-traded funds (ETFs), ending a long and frustrating wait for crypto enthusiasts and investors. Unlike the previous bitcoin futures ETFs, which track the price of bitcoin contracts on futures exchanges, the spot bitcoin ETFs allow investors to buy and sell actual bitcoin directly through a fund.

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1. Initial Volumes and Flows: A Strong Start
2. Long-Term Impact: A Milestone, But Not a Magic Bullet
3. The Bottom Line

This is a big deal for the crypto industry, as it opens up a new and convenient way for retail and institutional investors to gain exposure to the largest and most popular cryptocurrency. It also signals a shift in the regulatory stance towards crypto assets, which have often been viewed with skepticism and hostility by the authorities.

But how have the new funds performed so far, and what are the implications for the future of crypto investing?

Initial Volumes and Flows: A Strong Start

The first spot bitcoin ETF to launch was the Valkyrie Bitcoin Strategy ETF (BTF), which began trading on Nasdaq on Friday, November 12. It was followed by the BlackRock Bitcoin Strategy ETF (BTCR) on Monday, November 15, which debuted on NYSE Arca. Both funds charge a 0.4% annual fee and use Coinbase Custody as their bitcoin custodian.

The initial response from investors was impressive. BTF traded over $80 million worth of shares on its first day, while BTCR traded over $570 million, making it the second-largest ETF launch in US history. The funds also saw strong inflows of new money, with BTF attracting $61 million and BTCR $322 million in net assets by the end of their first day.

These numbers dwarfed the trading volumes and flows of the existing bitcoin trust products, such as the Grayscale Bitcoin Trust (GBTC) and the Bitwise 10 Crypto Index Fund (BITW), which have been the main vehicles for crypto exposure for US investors until now. GBTC, which has a 2% annual fee and trades at a significant discount to its net asset value (NAV), saw only $3 million in inflows and $28 million in outflows on Monday, while BITW, which has a 2.5% annual fee and tracks a basket of 10 cryptocurrencies, saw $4 million in inflows and $11 million in outflows.

The strong demand for the spot bitcoin ETFs suggests that investors prefer a more direct and cost-efficient way to access bitcoin, rather than paying high fees and dealing with NAV discounts or premiums. It also indicates that there is a lot of pent-up demand for crypto products that meet the regulatory standards and offer the same level of convenience and security as other ETFs.

Long-Term Impact: A Milestone, But Not a Magic Bullet

While the launch of the spot bitcoin ETFs is undoubtedly a positive development for the crypto industry, it is not a magic bullet that will solve all its challenges and propel it to mainstream adoption. There are still many hurdles and uncertainties that lie ahead, both on the regulatory and market fronts.

On the regulatory side, the SEC’s approval of the spot bitcoin ETFs does not mean that it has endorsed or validated bitcoin or other cryptocurrencies as legitimate investments. In fact, the SEC chair Gary Gensler has repeatedly warned about the risks and volatility of crypto assets, and urged investors to be careful and do their homework before investing. He has also called for more regulation and oversight of the crypto space, especially in areas such as stablecoins, lending platforms, and decentralized exchanges.

Moreover, the SEC’s approval of the spot bitcoin ETFs does not guarantee that it will approve other types of crypto products, such as ETFs that track other cryptocurrencies (such as ethereum or solana), or ETFs that use more complex or innovative structures (such as active management or smart beta). The SEC will likely evaluate each proposal on a case-by-case basis, applying its own criteria and standards. This means that it could take a long time before we see a more diverse and comprehensive range of crypto ETFs in the US market.

On the market side, the spot bitcoin ETFs do not necessarily reflect or influence the underlying price or fundamentals of bitcoin or other cryptocurrencies. They are simply vehicles that track the price of bitcoin on spot exchanges, which are subject to their own dynamics and risks. The spot bitcoin ETFs do not create new demand or supply for bitcoin; they merely facilitate existing demand or supply from investors who want to trade bitcoin through an ETF wrapper.

Therefore, the spot bitcoin ETFs are not immune to the volatility and unpredictability of the crypto market, which is driven by many factors beyond their control. These include macroeconomic conditions, geopolitical events, technological innovations, regulatory developments, network upgrades, security breaches, market sentiment, and human behavior. The spot bitcoin ETFs can also face operational issues or disruptions, such as technical glitches, liquidity problems, or hacking attacks.

In short, investing in spot bitcoin ETFs is not a risk-free or hassle-free way to gain exposure to crypto. It still requires a lot of research, due diligence, and risk management from investors, who should be aware of the potential rewards and pitfalls of the crypto space.

The Bottom Line

The launch of the spot bitcoin ETFs in the US is a significant milestone for the crypto industry, as it offers a new and convenient way for investors to access the largest and most popular cryptocurrency. It also signals a shift in the regulatory stance towards crypto assets, which have often been viewed with skepticism and hostility by the authorities.

However, the spot bitcoin ETFs are not a magic bullet that will solve all the challenges and propel the crypto industry to mainstream adoption. There are still many hurdles and uncertainties that lie ahead, both on the regulatory and market fronts. The spot bitcoin ETFs do not create new demand or supply for bitcoin; they merely facilitate existing demand or supply from investors who want to trade bitcoin through an ETF wrapper.

Therefore, investing in spot bitcoin ETFs is not a risk-free or hassle-free way to gain exposure to crypto. It still requires a lot of research, due diligence, and risk management from investors, who should be aware of the potential rewards and pitfalls of the crypto space.

Reference:

https://www.theblock.co/post/272434/launch-spot-bitcoin-etf-beginning