This year, Bitcoin ETFs have become the focus of institutional capital, while Ethereum ETFs have opened the door for other assets.
Article written by: André Beganski
Source: decrypt
Article compiled by: Ada, MetaEra
It seems like a long time ago for the fast-moving crypto industry, but the launch of Bitcoin and Ethereum spot ETFs in January and July respectively this year brought about a sea change in the cryptocurrency industry.
Spot Bitcoin ETFs have attracted a lot of money, allowing investors to invest in BTC without having to manage private keys. They also add legitimacy to the asset's position on Wall Street. Meanwhile, Ethereum spot ETFs have confirmed the asset's status in the eyes of regulators, and despite a lackluster debut, they have gained momentum in recent weeks and could open the door for Solana and XRP to launch similar products in the United States.
When Bitcoin ETFs began trading in January, the price of Bitcoin was $46,000. Nearly a year later, the asset's price has more than doubled. Driven by Donald Trump's presidency, Bitcoin's price even surpassed $108,000 in December.
According to CoinGlass, there are currently 11 spot Bitcoin ETFs, with a total assets under management (AUM) of $113 billion. Bloomberg ETF analyst Eric Balchunas told Decrypt in early December that by Christmas, the amount of Bitcoin held by these products might exceed the 1.1 million Bitcoins mined by the mysterious creator Satoshi Nakamoto.
As a result, this symbolic milestone was broken just two days later.
"It's like putting a perfect ending on a fantastic beginning," Balchunas said at the time. "This is nothing short of a miracle in financial history. Such a situation has never happened before and probably won’t happen again."
Regarding Bitcoin spot ETFs, Balchunas added that these products bring 'excitement, anticipation, opportunity, and legitimacy' to the asset. He emphasized that this significance should not be underestimated, as it eliminates barriers to investing in Bitcoin and allows investors to access brokerage brands they are familiar with and trust.
This is a clear departure from the popular saying after the FTX collapse in 2022, 'not your keys, not your coins'—many cryptocurrency enthusiasts believe that self-custody is the only reasonable way to own cryptocurrency. By 2024, the value proposition of holding Bitcoin without managing keys is too tempting for some investors to resist.
Nathan Geraci, president of the investment advisory firm The ETF Store, told Decrypt that he has always been very optimistic about the prospects of Bitcoin ETFs. Earlier this year, he predicted that these products would 'break all ETF issuance records' before they became popular. However, he added, 'the net inflows for these products have even exceeded my extremely optimistic expectations.'
BlackRock officially joins
This year, BlackRock's iShares Bitcoin Trust ETF (IBIT) has become the industry leader with over $53.5 billion in assets under management (AUM). In contrast, Grayscale Bitcoin Trust (GBTC), as the second largest spot Bitcoin ETF, has an AUM of $20 billion. BlackRock CEO Larry Fink has repeatedly emphasized Bitcoin's investment potential, further enhancing IBIT's image and status.
Larry Fink, head of the world's largest asset management company, who once had doubts about Bitcoin, portrayed it earlier this year as 'a potential long-term store of value' to counter the impact of government currency depreciation. However, Fink admitted months later that he had become a 'major believer' in Bitcoin, viewing the asset as a safe haven for those anxious about the world's future.
As a store of value, Bitcoin supporters often liken it to 'digital gold.' This analogy was concretely illustrated in November when the assets under management (AUM) of the iShares Bitcoin Trust ETF (IBIT) surpassed that of the iShares Gold ETF (IAU), which was launched in 2005.
As of publication, according to ETF database data, it ranks 32nd among all ETFs in the U.S. by AUM.
Analysts pointed out to Decrypt that BlackRock's entry into the cryptocurrency space in 2023 mitigated negative impressions in the industry, while Geraci indicated that the impressive performance of Bitcoin spot ETFs is by no means taken for granted but rather the result of multiple factors working together.
"Back in January this year, I wasn't sure if anyone would anticipate that the asset size of the spot Bitcoin ETF category would exceed $100 billion by the end of the year," he said. "In fact, many were skeptical that this category could ever reach that level."
A different market
According to research by the analysis company Kaiko, this year, Bitcoin spot ETFs have attracted significant inflows and improved Bitcoin's market structure.
Kaiko observed that the approval of Bitcoin spot ETFs in June increased Bitcoin trading volume on cryptocurrency exchanges while enhancing the market's ability to absorb large orders. Meanwhile, Kaiko's analysts noted that Bitcoin trading activity is concentrated on weekdays, coinciding with Wall Street's trading hours.
After self-proclaiming as the 'cryptocurrency president,' Trump's reelection triggered a historic surge in Bitcoin prices. For BlackRock's Bitcoin products, IBIT serves as a connecting link, allowing investors to trade Bitcoin in unprecedented ways.
On the day after Trump's election, November 6, the price of Bitcoin broke through $75,000, and the trading volume of IBIT exceeded $1 billion within 20 minutes. By the end of the day, IBIT's trading volume had soared to $4.1 billion.
Balchunas wrote on X (formerly Twitter): 'Today's trading volume exceeded that of Berkshire, Netflix, or Visa stocks.'
In an interview, Balchunas pointed out that this year, spot Bitcoin ETFs have set one record after another, from trading volume statistics to initial inflow speed. Notably, BlackRock's Bitcoin spot ETF reached $10 billion in AUM at the fastest rate in history. It is also the first ETF to reach $50 billion AUM, more than five times faster than any other ETF in history.
When the U.S. Securities and Exchange Commission (SEC) approved the listing and trading of spot Bitcoin ETFs in October, analysts told Decrypt that this development would make it easier, cheaper, and safer for institutional participants to invest in Bitcoin.
"I think this is an important step in the normalization process of cryptocurrency investment," Bitwise Chief Investment Officer Matt Hougan told Decrypt, "We should be happy about this."
Grayscale's Gap
When it comes to Bitcoin spot ETFs, one cannot overlook Grayscale. The company was once the largest asset management firm in the cryptocurrency space, and last year it won a lawsuit against the SEC, paving the way for the eventual approval of the product.
The SEC delayed the approval of Bitcoin spot ETF applications for a decade, citing concerns about market manipulation. However, last August, a U.S. appeals court in Washington, D.C. ruled that the SEC's repeated rejection of Grayscale's ETF application was unlawful.
Despite billions of dollars flowing out of Grayscale Bitcoin Trust (GBTC) this year—amounting to $21 billion as of the time of writing—Grayscale's then-CEO Michael Sonnenshein stated that these outflows were anticipated. In April, he noted that the bankrupt cryptocurrency companies were 'forced' to liquidate their GBTC holdings, while traders were profiting from the large discounts created by GBTC's previous structure.
Analysts also noted that the outflow of funds from GBTC is related to its 1.5% fee rate. This fee rate makes the holding cost of GBTC higher than its competitors, which have fee rates as low as 0.19%. In response, Grayscale launched a derivative ETF of GBTC with a fee rate of 0.15%.
A similar situation occurred with the Grayscale Ethereum Trust (ETHE), which, according to CoinGlass, experienced outflows exceeding $1 billion in the first three trading days after its official listing. Although the outflows have largely stopped, and Grayscale has launched a derivative ETF for ETHE, the outflows weakened investor enthusiasm when the spot Ethereum ETF was introduced this summer.
Ethereum and others
As SEC Chair Gary Gensler avoided questions regarding Ethereum's regulatory status, many doubt whether applications for spot Ethereum ETFs will be approved under his leadership. However, surprisingly, the SEC green-lighted these products in May.
Ethereum software company Consensys filed a lawsuit accusing the SEC of treating ETH as a security internally. This classification would force companies hoping to launch ETFs to take different approaches, but the SEC's actions have effectively confirmed Ethereum's status as a commodity.
Nevertheless, the inflow of funds into Ethereum spot ETFs is far lower than that of Bitcoin spot ETFs. According to CoinGlass, as of the time of writing, since their launch in July, Ethereum spot ETF products from eight issuers have attracted only $2.3 billion in inflows, while Grayscale Ethereum Trust (ETHE) has experienced $3.6 billion in outflows.
Meanwhile, ETFs have not boosted Ethereum's price as they have for Bitcoin. After peaking at around $4,100 in early December, the cryptocurrency is currently trading at about $3,400. Unlike Bitcoin, Ethereum has not yet broken its historical high in 2024, nor has it come close to that level.
FlaconX Research Director David Lawant told Decrypt that it makes sense that investors have not flocked to the Ethereum ETF, as Ethereum's narrative is relatively less known compared to Bitcoin in the minds of mainstream investors.
Lawant also stated that Bitcoin's narrative as a store of value has been established. However, whether Ethereum is described as a technology play, a smart contract platform, or an application store for Web3 applications, the narrative surrounding Ethereum is not as mature outside the cryptocurrency circle.
"Ethereum is different from Bitcoin," Lawant said, "You can tell the story from different angles, but no matter how you tell it, it's a different story."
Currently, Bitcoin and Ethereum are the only two digital assets in the U.S. with spot ETFs. However, as the Trump administration seeks to establish a cryptocurrency-friendly SEC, asset management companies have applied for ETFs covering an increasing number of other digital assets, such as Solana, XRP, and Litecoin. Analysts told Decrypt that in this environment, even a Dogecoin ETF seems less far-fetched.
Whether the applications for these cryptocurrencies are approved may depend on Gensler's successor Paul Atkins, who was an SEC commissioner and is also Trump's nominated successor. Meanwhile, Bitcoin and Ethereum spot ETFs will continue to trade, facing higher standards and expectations after their first successful year.
