On Friday, crypto asset manager Bitwise said that $240 million flowed into its spot bitcoin exchange-traded fund (ETF), the most of the ten such products that began trading on Thursday. The funds are the latest sign that investors are warming to digital assets after a decade-long tussle with the industry.
The new ETFs have triggered a fee war as fund issuers compete to lure money by slashing fees and waiving them for the first six months of trading. Bitwise, a crypto native fund manager, has the least expensive offering with its 0.24% fee after a waiver period, though others, such as BlackRock and VanEck, are not far behind.
BlackRock’s iShares Bitcoin Trust (IBIT) took in the second most on its first trading day, followed by ARK 21Shares and Fidelity’s Wise Origin Bitcoin ETF, according to data posted on X. BlackRock’s clout and size could have allowed it to charge more, but it chose to go with a 0.30% fee, which is below the average of the other new funds at that level.
Despite the fee competition, most new ETFs are expected to attract significant inflows over time as they gain traction with market participants. The assets of their parent companies back the funds and can thus attract traditional investor capital, which should help them weather any sell-the-news risk that might emerge as prices fluctuate in the near term.
According to some experts, investors are also embracing ETFs for their transparency, which should make them less vulnerable to the risks of direct cryptocurrency investments, such as hacking or price manipulation. The funds are also less volatile than individual cryptocurrencies, which can experience steep fluctuations in value.
But while some market participants expect the ETFs to entice a lot of money, others think that investors will eventually get sick of the volatility and may want to switch to more stable assets like stocks and bonds. The ETFs are also likely to be limited in scope, as the SEC has only approved ETFs that invest in a specific category of security rather than all securities.
The SEC’s approval of the first batch of spot bitcoin ETFs is an important milestone. However, a few hurdles remain to overcome before the cryptocurrency industry fully matures. In particular, regulators will have to address whether the bitcoin ETFs should be classified as exchange-traded or mutual funds, which must disclose more information than private securities. The SEC’s new rules on these funds will be finalized later this year.
The agency has several other cryptocurrency proposals on its docket, including a proposal from VanEck in collaboration with SolidX and long- and short-spread leveraged bitcoin futures ETFs from GraniteShares and ProShares. The agency is also considering a slew of ETFs from iShares and BlackRock. The filings are part of a flood of ETF applications that the SEC received this week. The agency typically takes about a month to review each before making decisions.
