Bitcoin ETFs: Industry Perspectives on Competition and Adoption

Nearly a month and a half has passed since the approval of spot exchange-traded funds based on the leading cryptocurrency. ForkLog has gathered opinions from industry representatives on the benefits and risks of this new instrument.

Fund Wars

Ophelia Snyder, President of 21Shares, told Decrypt that the launch of bitcoin ETFs has been a significant success, but the financial gap between the largest issuers could pose some danger to smaller management companies.

“I think there will be a maximum of three to five winners in the market,” she noted.

According to Snyder, since the emergence of crypto products, developments have been both expected and unexpected. The volume of investments in ETFs was positive, but it is particularly interesting to see how “receptive” the market has become even without the intervention of the largest financial players, added the head of 21Shares.

Snyder emphasized that the launch of bitcoin funds has been the most successful start for ETFs in history, and this is “just the opening shot.”

According to the company head, most early investments in bitcoin ETFs came from retail and family investors, rather than Wall Street advisors or brokers.

She clarified that the scale of retail inflows represents pent-up demand over the past decade, which has been “compressed” and is now being released.

For financial firms, entering such markets takes several months to a year, Snyder explained. Banks and managers first need to study the instrument and choose an investment strategy.

According to Snyder, no matter how successful bitcoin ETFs are, 21Shares will not rush firms into making decisions.

She also predicted increased competition among issuers. In this contest, smaller ETFs will find it challenging to compete with larger counterparts, especially those with assets under management exceeding $1 billion.

Ultimately, market participants will gravitate towards products that offer greater trading volume and liquidity, concluded the head of 21Shares.

Crypto Boom

Navin Gupta, CEO of the analytical company Crystal Intelligence, expressed confidence in the continued growth of the crypto market thanks to bitcoin ETFs in an interview with Cointelegraph.

According to him, the unregulated part of the crypto industry is shrinking, as exchange-traded funds based on digital gold have prompted many companies to apply for a crypto service provider license in the US.

Moreover, bitcoin ETFs have, for the first time in the asset’s history, brought a steady inflow of non-speculative investments, legitimizing cryptocurrency in the eyes of global regulators, Gupta believes.

“Institutional adoption is already happening. BlackRock manages trillions of dollars, and bitcoin is a very small part of that. But they have already dipped their toes in, and the same applies to regulators,” he added.

The success of bitcoin funds will also encourage management companies to launch other ETFs based on digital assets.

Inflows

As of the session on February 20, the trading volume of nine spot bitcoin ETFs, excluding Grayscale, approached $2 billion, marking the second-highest figure since the instrument’s launch.

The Nine had biggest volume day since Day One with about $2b in combined trading thx to big contributions from $HODL, $BTCW and $BITB which all broke their personal records. For context $2b in trading would put them in Top 10ish among ETFs and Top 20ish among stocks. It’s a lot. pic.twitter.com/547pIl5grI

— Eric Balchunas (@EricBalchunas) February 20, 2024

According to Bloomberg exchange analyst Eric Balchunas, the reason was a sudden inflow of funds into VanEck (HODL) and WisdomTree (WBTC) funds, which recorded increases of 1400% and 1200% respectively.

Earlier, VanEck notified the US Securities and Exchange Commission of a fee reduction for its ETF from 0.25% to 0.20% starting February 21.

In the case of WisdomTree, the surge in interest remains unclear. Balchunas joked that someone on Reddit or TikTok might have recommended the instruments to their followers.

Still haven’t figured out what happened. No one knows. Given how sudden and explosive the increase in number of trades was (500 trades Friday, 50,000 trades today) I’m wondering if some Reddit or TikTok influencer type recommended them to their followers. Feels retail army-ish. https://t.co/WazxSSgFjR

— Eric Balchunas (@EricBalchunas) February 20, 2024

Previously, analysts at Kaiko concluded that the launch of spot ETFs positively impacted the liquidity of bitcoin’s order book and its ability to trade at stable prices.

On February 19, the 2% market depth of the cryptocurrency across 33 centralized exchanges increased to $539 million, the highest since October 2023.

In January, bitcoin funds from BlackRock and Fidelity ranked among the top ten largest American ETFs by inflows.