It may not have been obvious yet, but Bitcoin exchange-traded funds (ETFs) are gaining traction and demand for the product has surpassed all expectations.
Of the 575 ETFs launched this year, 14 of the top 30 are new Bitcoin or Ethereum funds, with Bitcoin funds accounting for the top four spots, according to Bloomberg data.
Over the past four years, of the 1,800 ETFs that began trading during that period, BlackRock’s iShares Bitcoin Trust was by far the largest in terms of inflows, data shows.
575 ETFs launched in 2024…
*14 of the top 30* inflows are either spot BTC or ethETFs.
Includes 6 of the top 10.
There are also two MSTR-related ETFs in the top 30.
The interest in cryptocurrencies by tradfi is real. pic.twitter.com/DmD6f5zJ1P
— Nate Geraci (@NateGeraci) October 23, 2024
ETFs are popular investment vehicles traded on stock exchanges. This allows investors to buy and sell stocks that track the price of everything from the S&P 500 and gold to Bitcoin and real estate companies.
In January, the Securities and Exchange Commission (SEC) approved Bitcoin products, allowing 10 Bitcoin funds to begin trading on U.S. stock exchanges after a decade of rejection.
This investment vehicle is widely popular, with billions of dollars flowing into it in just a few months. Last week, they collectively crossed the $20 billion mark, crushing expectations that they would accomplish in just 10 months what gold ETFs took five years to accomplish.
James Seifert, an ETF research analyst at Bloomberg Intelligence, said part of the reason for this rapid capital growth is that people who had wanted to invest in Bitcoin for some time had been looking to invest in Bitcoin for some time, but before the ETF was approved, it was safe and easy to do so. The blame lies with investors who didn’t have the means to do so. Now that ETFs are being traded, demand for them is rapidly entering the market.
“I think it was partly pent-up demand,” he told Decrypt. “But as people learn more, it’s also a new demand.”
He added that traditional financial institutions, such as hedge funds involved in futures trading, are also interested in the product. “That’s helping improve flows and demand,” he said, adding that hedge funds are longing ETFs and then selling futures contracts.
Large institutions including Morgan Stanley and Goldman Sachs are now exposed to Bitcoin through new products. Bitcoin prices hit a new all-time high in March after approval.
However, Ethereum’s counterpart has not been so lucky so far. The SEC approved (seemingly grudgingly) the second-largest crypto ETF in May. There hasn’t been much in terms of capital inflows since trading began in July.
This is partially due to the fact that prior to July, Grayscale’s Grayscale Ethereum Trust (ETHE) operated more like a closed-end fund than an ETF. The subsequent shift means investors who previously kept cash in the fund are rapidly redeeming their shares, leading to huge outflows.
According to data from Farside, $3 billion has flown out of the fund so far, bringing total flows across all nine currently traded Ethereum ETFs to negative $472.7 million.
However, that doesn’t mean demand won’t increase. Investors are putting money into other products, which could mean a turnaround is just around the corner.
“The outflows from ETHE are simply overwhelming the inflows to other (Ethereum) ETFs,” Seifert added. “For now.”
Edited by Andrew Hayward
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