ETF listings are seen as a starting point to evolve digital asset products and functionality.
Total trading volumes for the 11 spot bitcoin exchange-traded funds exceeded $1bn within 30 minutes of their trading debut, and could set a record for first day trading.
The US Securities and Exchange Commission finally approved the listing and trading of 10 spot bitcoin ETFs on 10 January 2024, and approved the conversion of the Grayscale Bitcoin Trust into an ETF.
Crypto asset manager Grayscale Investments launched trust as the first publicly-traded bitcoin fund in the U.S in 2013 and the trust became an SEC reporting company in early 2020. In 2023 Grayscale won a bout case against the SEC, which had not rejected allowing the trust to convert into an ETF.
Gary Gensler, chair of the SEC, referred to the court case in his statement on the approval of spot bitcoin ETFs. He said that based on the court case and circumstances discussed in the approval order, the most sustainable path forward is to approve the listing and trading of spot bitcoin exchange-traded products.
Trading volumes
Steve Kurz, global head of asset management at Galaxy Digital, said the spot bitcoin ETF listings were just the start of the race. He took part in an X Space hosted by Alex Thorn, head of firmwide research at Galaxy Digital, on 11 January.
Kurz expects hedge fund participation in the new ETFs to be higher than anticipated as they understand bitcoin, but could not access spot crypto on unregulated venues.
In addition, he expects participation from wealth managers to be higher than people expect because many wealth platforms are giving clients access to the ETFs from day one.
“The wealth wave is ready to go,” said Kurz.
James Seyffart, research analyst at Bloomberg Intelligence, said on the X Space that it is unusual to have 11 ETFs that are essentially providing the same exposure launching on the same day. He continued that differences between the funds are in their fees, and will be in their trading volumes.
“It will be interesting to see how good the funds are at executing at the right price as they are cash-settled, and how they perform over time,” Seyffart added.
Kurz said that liquidity and tracking error will be crucial for ETFs to win share. “Assets follow liquidity,” he added.
Galaxy Asset Management has partnered with Invesco to launch the Invesco Galaxy Bitcoin ETF. For the first six months after launch, Invesco is waiving BTCO’s entire fee on assets up to $5bn.
“Our collective experience managing crypto ETPs in Canada, Brazil, and Europe, and, more specifically, our direct experience managing a cash create bitcoin ETF in Canada has been instrumental in developing a product with low fees, strong liquidity, and minimal tracking error,” added Kurz.
Matt Fiebach, research analyst at Blockworks, said in a newsletter that all eyes are now on the ETFs’ inflows.
“In my opinion, if we see the most inflows of any day one ETF ever (~$2.2bn) it could be a catalyst for the return of mania,” he added.
Reaction
Michael Novogratz, founder and chief executive of Galaxy Digital, said on the X Space that the listings had given the stamp of approval to crypto, but they are a small step as regulation still has a long way to go. He expects that spot ethereum ETFs will also be approved.
Novogratz said: “I was on a call last night with 90 of the Invesco salesforce and I am confident that in 10 weeks time we will see new money coming in, not just a reallocation.”
As the ETFs began trading the price of bitcoin rose to more than $48,000, which Thorn said exceeded the cycle high. “They have made a convincing debut,” he said.
Novogratz predicted that bitcoin will reach over $100,000 by the end of this year due to macro headwinds as the Federal Reserve lowers interest rates, and the access provided by ETFs.
“Invesco, BlackRock and the other issuers have more than $13 trillion in assets and are providing an orange pill which will lead people in,” he added.
Neelabh Dixit, commercial product manager – derivatives at digital infrastructure provider Talos, said in a report that the new ETFs mark a significant development in the investment landscape.
“Over the past 24 hours, ether and native tokens of applications built on the ethereum platform have experienced a surge, driven by traders speculating on the possibility of a spot ether ETF proposal following the expected approval,” he added. “Notably, the earliest deadline for a decision on spot ether ETFs is in May later this year for VanEck’s application, while BlackRock’s deadline is set for August.”
Greg Tusar, VP, institutional product at Coinbase, and Brett Tejpaul, head of Coinbase Institutional, highlighted in a blog that the crypto firm is providing custody for 8 of the new ETFs.
They noted that every time a spot ETF is bought or sold, market makers need to transact in the underlying asset, so spot bitcoin ETFs will increase trading and liquidity in bitcoin.
“The prevalence of ETFs in client portfolios should help inspire innovative new financial products, such as lending and derivatives, that can use regulated ETFs as building blocks,” they added.
Julian Sawyer, chief executive of digital asset custodian Zodia Custody, said in an email that this isn’t simply a moment to increase the investor base in one digital asset.
“It should be seen as the starting pistol in a race to evolve products and functionality in line with the maturity and complexity seen in traditional financial services,” he added. “But in this transformative period, the need for robust infrastructure has never been more paramount. It is essential that the digital asset sector moves forward together and as one, with innovation and security side by side.”
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