Friends and enemies,
I had some time this weekend to do a little research on the state of the US ETFs. I tried (with a little AI help) to put together the latest info in a way that might be shareable/digestible for a new entrant to Bitcoin via these new vehicles.
TLDR: They are taking in tons of money, and will be at the center of the coming Bitcoin bull run, whether you like it or not.
Bitcoin ETFs: A New Era for Bitcoin
The launch of the first U.S.-listed exchange-traded funds (ETFs) tracking the spot price of bitcoin in January 2024 marked a historic moment for the cryptocurrency industry and the broader financial system. The approval by the Securities and Exchange Commission (SEC) of 11 spot bitcoin ETFs opened the door for millions of investors to gain exposure to the world’s largest digital asset without having to buy, store, or secure it themselves.
This, to me, marks the end of the early Bitcoin Epoch – we’re crossing “The Chasm” as some have said, and idea coined by Geoffery Moore.
What are spot bitcoin ETFs and why are they important?
An ETF is a type of investment fund that can be traded on a stock exchange like any other security. An ETF typically tracks the performance of an underlying asset, index, or basket of securities, and allows investors to buy or sell shares of the fund at any time during market hours. For Bitcoin, this might lead to minor inefficiencies, but they’re negligible long term in my opinion – the price changes day to day are going to be tiny rounding errors in the long run.
A spot bitcoin ETF is an ETF that directly invests in bitcoin and reflects its current market price, also known as the spot price. This means that the ETF holds actual bitcoin in custody and adjusts its holdings according to the demand and supply of its shares. The ETF also charges a management fee to cover its operational costs and provide a return to its sponsor.
Spot bitcoin ETFs are important for several reasons. First, they provide a convenient and regulated way for investors to access the bitcoin market without having to deal with the technical and security challenges of buying and storing bitcoin themselves. This lowers the barriers to entry and increases the liquidity and efficiency of the market.
Second, they offer a transparent and standardized way for investors to track the performance of bitcoin and compare it with other asset classes. Spot bitcoin ETFs are required to disclose their holdings, fees, and methodologies on a regular basis, and are subject to the same rules and regulations as other ETFs. This enhances the credibility and legitimacy of bitcoin as an investable asset.
Third, they create new opportunities for innovation and diversification in the Bitcoin space. Spot bitcoin ETFs can be used as building blocks for other financial products and services, such as index funds, derivatives, lending, and insurance. They can also be combined with other asset classes to create balanced and customized portfolios that suit different risk and return preferences. Think 2% Bitcoin, 98% USD, or Bitcoin/Gold/Bond vehicles, or other Bitcoin plus [x] other asset. These spot products alone are only the beginning, something not enough people in Bitcoin are discussing.
How have spot bitcoin ETFs performed so far?
The launch of spot bitcoin ETFs in the U.S. was met with strong investor demand and enthusiasm. According to Bloomberg ETF analyst Eric Balchunas, the newly launched ETFs saw inflows totaling $1.4 billion in the first two trading sessions, with a total volume of $3.6 billion. A total of 500,000 trades were made on the funds, indicating a high level of interest and activity.
Among the 11 spot bitcoin ETFs, four have emerged as the frontrunners in terms of assets under management (AUM) and trading volume. These are:
- iShares Bitcoin Trust ETF (IBIT), sponsored by BlackRock, the world’s largest asset manager. IBIT has the lowest fee among the spot bitcoin ETFs at 0.12%, and has attracted $2.7 billion in AUM as of January 31, 2024.
- Fidelity Wise Origin Bitcoin Fund (FBTC), sponsored by Fidelity Investments, one of the leading providers of crypto custody and trading services. FBTC has a fee of 0.95%, and has amassed $1.6 billion in AUM as of January 31, 2024.
- Bitwise Bitcoin ETF (BITB), sponsored by Bitwise Asset Management, a pioneer in crypto index funds and research. BITB has a fee of 0.00%, and has gathered $623.1 million in AUM as of January 31, 2024.
- ARK 21Shares Bitcoin ETF (ARKB), sponsored by ARK Investment Management, a prominent supporter of disruptive innovation and crypto adoption. ARKB has a fee of 0.00%, and has collected $509 million in AUM as of January 31, 2024.
The flows are only going to continue to accelerate – consider that, for the moment, we’ve only begun to see advertising campaigns for these products, and awareness is only starting to turn upward. I’d also guess that, at 50k USD BTC or some other larger, round number, investors will begin to demand an allocation from their advisors, and with fees now available for their efforts, advisors will not only oblige, but encourage their clients to drop a few bucks into one of the ETF products.
How many bitcoins are held by spot bitcoin ETFs?
According to CoinGecko, a leading crypto data and analytics platform, spot bitcoin ETFs hold around 144,222 BTC in total worldwide, representing 0.8% of the maximum 21 million bitcoin supply. This does not include the Grayscale Bitcoin Trust (GBTC), which is pending SEC approval to convert from a close-ended unit trust to an ETF. GBTC has the single highest bitcoin holdings by far at 622,657 BTC, or 3.0% of the maximum bitcoin supply.
The number of bitcoins held by spot bitcoin ETFs varies widely, from 2 BTC in Valour Bitcoin Carbon Neutral (1VBT), to 35,523 BTC in Purpose Bitcoin ETF (BTCC). The amount of bitcoin held by each ETF depends on several factors, such as the size of the fund, the demand for its shares, the availability of bitcoin in the market, and the custody and security arrangements of the sponsor.
What are the implications and challenges of spot bitcoin ETFs?
The approval and launch of spot bitcoin ETFs in the U.S. is a significant milestone for the Bitcoin industry, as it signals the growing acceptance and recognition of bitcoin as a legitimate and valuable asset class. It also creates new possibilities and challenges for the future development and evolution of the Bitcoin ecosystem.
Some of the potential implications and challenges of spot bitcoin ETFs are:
- Increased adoption and awareness: Spot bitcoin ETFs can increase the adoption and awareness of bitcoin among a wider and more diverse audience, especially among institutional and retail investors who may not be familiar or comfortable with crypto exchanges and wallets. This can boost the demand and liquidity of bitcoin, as well as its network effects and social value.
- Enhanced regulation and oversight: Spot bitcoin ETFs can enhance the regulation and oversight of the crypto industry, as they are subject to the same rules and standards as other ETFs and securities. This can improve the transparency and accountability of the crypto market, as well as the protection and education of investors. However, it can also introduce new complexities and uncertainties, as regulators may impose different or conflicting requirements on crypto-related activities and entities.
- Innovation and competition: Spot bitcoin ETFs can spur innovation and competition in the Bitcoin space, as they can be used as building blocks for other financial products and services, such as index funds, derivatives, lending, and insurance. They can also be combined with other asset classes to create balanced and customized portfolios that suit different risk and return preferences. However, they can also face competition from other crypto products and platforms, such as decentralized exchanges, stablecoins, and non-fungible tokens, that may offer more features and benefits to crypto users.
- Other “crypto” garbage will get ETFs: This might be a bit of a sore spot for maxis, and perhaps rightfully so, but the fact of the matter here is that if/when (probably when) Ethereum or some other major/mid-major coin gets it’s own ETF product, it will only continue to grant legitimacy to Bitcoin, the ETF products, and the broader crypto (puke) space. It’s good for us, even if it’s a bitter pill to swallow.
I’d say that, if you’re keeping cash for dips etc, it might be time to reconsider that strategy – the pop is coming, and it’s going to be violent.