Blockchain
In cryptocurrency, ETF stands for “anything that fits”
One of the major cryptocurrency narratives this year has been the approval and trading of US spot exchange traded funds (ETFs). They have been a resounding success. Not only have bitcoin ETFs attracted $16 billion in inflows in half a year, the price of bitcoin (and hence the prices of these ETFs) has increased by 46%.
To be sure, the assets under management (AUM) attributable to IBIT, BlackRock’s Spot Bitcoin ETF, remains tiny compared to BlackRock’s total AUM (subtracting IBIT’s $18 billion AUM from BlackRock’s total AUM of $10.6 trillion still leaves $10.6 trillion). However, Fink’s comment further legitimizes bitcoin in the eyes of Boomer financial advisors, now that firms like BlackRock and Fidelity (still waiting for Vanguard) are blessing bitcoin as a legitimate asset with a place in their portfolios.
So Bitcoin, at least in this way, is here to stay.
While I personally still support bitcoin it’s different from other cryptocurrencies and it is the only one that actually does what it sets out to do, I think it is (and was) a grave mistake to assume that bitcoin was somehow special in the eyes of high finance and Wall Street and, by extension, ETF issuers.
The US ETF market is huge. Check out the statistics of the Investment Company Institute for 2023: $8 trillion in assets; 218 firms providing ETFs; 3,108 total ETFs! And for good reason. ETFs make it trivial to build your portfolio based on whatever investment thesis you may have.
For example, if you wanted to invest in healthcare or consumer discretionary, there are sector ETFs for that. Let’s say you’re young and want to throw most of your portfolio into the Nasdaq-100, a tech-heavy stock. Just buy some of Invesco’s QQQ ETF, which tracks that. Whatever the idea, there’s an ETF for that.
There are even ETFs for more fun and potentially farcical ideas.
Let’s say you’re young and want to invest most of your portfolio in the Nasdaq-100, but you also want to get rich three times faster. You can buy TQQQ, which is the same as QQQ but goes up (and down) three times faster (this is achieved through debt or leverage, hence the term “Triple Leveraged ETF”).
Given all of this, it is clear that it would never be possible to say that “the Bitcoin ETF is the only ETF that will ever exist because Bitcoin is better than the others and the SEC knows it.”
Philosophically, it didn’t matter if cryptocurrencies were securities then, and it doesn’t matter now. So now the Bitcoin spot ETF has come to the US and then comes one for Ethereum and then the next one and the next one and the next one until we finally stop and ask ourselves: what exactly is stopping the potential issuance of a meme coin ETF? Before answering: “meme coins are stocks”, remember that many ETFs contain stocks (QQQ, TQQQ, WWJD, VICE).
As long as regulators allow shiny new crypto ETFs, ETF companies will continue to provide them to the market because that’s what ETF providers do for a living. They make ETFs, investors buy them, and the providers earn a fee for managing them.
Even though it now seems that if it looks like a duck and caws like a duck, it will be stuffed the way taco in an ETF, I believe cooler heads will (eventually) prevail, among investors and/or regulators. Although it will take a Duckling ETFs to make this happen.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.