Among the highly awaited financial innovations of recent times, the authorization and debut of Bitcoin-based Spot ETFs were undeniably significant. As the year 2024 came to a close, the combined net assets totaling $129 billion in these ETFs hint at an even more revolutionary 2025.
Investment tools called exchange-traded funds (ETFs) mirror the value of their underlying assets. They are managed in a controlled, clear, and quickly sellable manner, giving investors opportunities to invest in assets they might find difficult or reluctant to own directly. This structure is particularly attractive for cryptocurrencies since it provides a regulated, widely available, and tax-efficient method of investment.
From 2013 onwards, the U.S. Securities and Exchange Commission (SEC) has continually denied all proposals for a Bitcoin spot ETF. Companies including VanEck, WisdomTree, Bitwise, ARK Invest, 21Shares, and Grayscale have encountered multiple rejections in their attempts to launch such an ETF.
2021 saw the Security and Exchange Commission grant approval for futures-based Bitcoin ETFs, with ProShares’ BITO being the pioneer to debut. It experienced initial success, amassing over $1 billion in assets in just two days. However, investor enthusiasm for BITO waned swiftly, causing its Assets Under Management (AUM) to plummet from a high of $1.4 billion to $500 million within a year.
This dive mirrored the larger crash in the cryptocurrency market, yet it also highlighted the constraints inherent to such a financial product. Futures-based ETFs enable investors to capitalize on Bitcoin’s price fluctuations, but they don’t possess the fluidity of spot ETFs, which actually own Bitcoin (BTC). Moreover, spot ETFs can cause immediate buying or selling pressure, thus significantly impacting Bitcoin’s price and market liquidity.
Inflows show the spot BTC ETF was a resounding triumph
In the world of ETFs, spot Bitcoin ETFs have quickly become a phenomenon.
Initially, the nine freshly launched ETFs (excluding Grayscale and Hashdex) broke numerous industry benchmarks. For instance, they recorded a staggering $2.2 billion worth of trades on their debut day, with IBIT accounting for an impressive $1 billion alone. As per Bloomberg Intelligence, IBIT and FBTC were the sole funds in the entire ETF market to draw more than $3 billion in investments within their initial 20 trading days.
It’s important to mention that a large portion of these investments originated from Grayscale reducing its holdings. Due to its high 1.5% fee, Grayscale started to seem less attractive compared to the newly launched ETFs, which didn’t charge more than 0.25%. However, it wasn’t just Grayscale’s outflows that caused this growth; rather, a substantial amount of new capital flowed into the Bitcoin ETF market, leading to continuous increases in total investments throughout the year.
By the close of 2024, the achievement of Bitcoin Spot ETFs was indisputable. Despite the year being a robust one for ETFs in general – with the top 20 funds exceeding their previous flow record by 25% – the freshly introduced Bitcoin ETFs had already matched the performance of long-standing industry leaders.
According to Eric Balchunas’ post on Bloomberg, BlackRock’s iShares Investment-Grade Bond ETF (IBIT) ended 2021 among the top three ETFs in terms of funds gathered so far, accumulating a staggering $37.2 billion. This impressive feat outperformed established players such as Vanguard’s Total Stock Market ETF (VTI), Invesco’s Nasdaq-100 Trust (QQQ), and State Street’s S&P 500 Index fund (SPY) – all of which have a long history. Remarkably, IBIT accomplished this feat without even reaching its first anniversary yet.
Fidelity’s FBTC also made a strong showing, earning an honorary 14th place.
Bitcoin ETFs flipped gold
Bitcoin is frequently referred to as “digital gold” due to its ability to store value, and viewing Bitcoin ETFs in the same light as gold ETFs provides an intriguing viewpoint. Interestingly enough, Bitcoin ETFs did not just meet expectations – they went beyond them.
By November 2024, BlackRock’s IBIT fund reached an impressive total of $33.2 billion in assets, outperforming its gold fund, IAU, which held $32 billion. Established in 2005, IAU initially had a significant advantage over IBIT, starting the year with $25 billion more in assets. However, within just a few months, IBIT managed to match and surpass IAU’s initial lead.
It’s not just BlackRock experiencing this trend. Vetle Lunde, the Head of Research at K33, recently displayed a graph indicating that Bitcoin ETFs amounting to $129.2 billion have surpassed gold’s $128.9 billion. This figure encompasses all types of Bitcoin ETFs, including spot and futures.
Compared specifically to Exchange-Traded Funds (ETFs), Bitcoin holds $120 billion in comparison to gold’s $125 billion, according to Eric Balchunas from Bloomberg. It’s astonishing that a product only one year old has managed to match the value of something as historically reliable as gold.
Spot Ether ETF also makes waves
In July 2024, Ethereum (ETH), the second-largest cryptocurrency by market value, made its entrance into the Exchange Traded Fund (ETF) sector with the debut of its initial ETFs focusing on Ethereum. However, these ETFs’ performance was less dynamic compared to that of Bitcoin. Beginning with a starting assets under management (AUM) of $8.8 billion from the transformed Grayscale Ethereum Trust, the total AUM expanded only slightly to $11 billion by the end of the year, as reported by TheBlock. This suggests that Bitcoin’s “digital gold” narrative is still more appealing than Ethereum’s “world computer,” and it seems that many investors require additional persuasion regarding the potential of Web3.
Will more crypto ETFs launch in 2025?
2025’s beginning indicates that there’s continued enthusiasm for Bitcoins traded ETFs, persisting through market adjustments. As per Farside’s report, these ETFs have garnered approximately $1.1 billion in net inflows so far this year.
With Bitcoin’s increasing acceptance in political and financial spheres, its momentum might not only persist but also extend to other cryptocurrencies. For example, the prospect of a Solana Exchange-Traded Fund (ETF) has sparked significant interest within the crypto community. In fact, Polymarket users predict a 74% likelihood of a SOL ETF being approved by 2025. Similarly, Ripple‘s potential for an ETF stands at approximately 70%. Companies like VanEck, 21Shares, and Canary Capital have already initiated the process to create such ETFs.
2025 might see a change of heart among Bitcoin skeptics. So far, Vanguard, one of the world’s leading investment companies, has chosen to stay out of the cryptocurrency market.
Nevertheless, the story might take a different course after the exit of its vocal Bitcoin critic, Tim Buckley, and the incoming of ex-BlackRock executive, Salim Ramji, last summer.
As an analyst, I posit that if Vanguard, a colossal player in the financial world with a robust trading infrastructure valued at $9 trillion, were to introduce a Cryptocurrency Exchange-Traded Fund (ETF), it could potentially catalyze substantial growth within the crypto market.
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2025-01-10 19:30