The launch of U.S.-listed bitcoin exchange-traded funds (ETFs) got off to a robust start, with over $4.6 billion worth of shares trading hands as of Thursday afternoon, according to LSEG data. The new ETFs, which include offerings from major players like BlackRock, Grayscale, and Fidelity, saw strong demand as investors jumped into the landmark products approved by the U.S. securities regulator on Wednesday.
The ETFs mark a watershed moment for the cryptocurrency industry, which has long sought ways to attract mainstream investors. The products will allow investors to get a foothold in the market without having to buy and hold physical bitcoin, which has a high price tag and is volatile and complex to store.
They will track the price of spot bitcoin, which refers to the price at which it is currently traded on significant exchanges. The funds are expected to draw in a combined $70 billion to $80 billion in capital by the end of next year, Bernstein analysts estimate. The new funds offer many other benefits over direct investments in bitcoin, including more accessible market access, the ability to invest and redeem shares daily, and the potential for tax advantages.
The eleven spot bitcoin ETFs that began trading on Thursday accounted for more than $4 billion worth of trades, with the Grayscale Bitcoin Trust, Bitwise Bitcoin ETF, and ARK 21Shares Bitcoin ETF enjoying the highest trading volume. In a departure from typical ETF practice, which uses in-kind transactions involving their underlying assets to create and redeem shares, the funds will use cash instead.
Despite the healthy trading numbers, investors must carefully consider whether the new ETFs suit them. For many, the decision will come down to fees, liquidity, and fund trading costs. Buy-and-hold investors should look at fees, while active traders will focus on the number of funds they can buy and sell daily, a metric known as “turnover” or “friction.”
Moody’s Assistant Vice President Cristiano Ventricelli, who leads the debt capital markets group for its DFDA unit, notes that while there may be a large amount of capital to deploy into these new products, it doesn’t mean all investors will increase their bitcoin allocations as a result. “At this point, bitcoin still makes up only a small share of the average investor’s portfolio,” he said.
The debut of the ETFs could be a significant turning point for the crypto industry, but it will take time to determine how big an impact they have on prices and flows. It also remains to be seen if digital assets — still viewed by many professionals as risky — will gain broader acceptance as an investment. Until then, the industry will continue to focus on making it as easy and attractive as possible for mainstream investors to join in. This includes making it easier for them to invest in digital currencies by cutting management fees and lowering transaction fees.
