Regulation
Winners and losers of the Spot Bitcoin ETF race in the United States
Although the cryptocurrency has a reputation for attracting investors from outside the mainstream, the biggest winners from the recently launched Bitcoin spot funds are two of the best-known names in the sector.
Since Bitcoin spot exchange-traded funds (ETFs) began trading in the US on January 11, investors have invested $12.1 billion (£9.7 billion) in them, including more than 80% went to either BlackRock’s iShares brand or Fidelity Investments.
“They are both huge asset managers with incredible reach and the strongest distribution networks. […] everyone is an iShares customer, and other companies don’t have platforms like Fidelity,” says Bryan Armour, director of passive strategies research for North America at Morningstar.
Meanwhile, the Grayscale Bitcoin Trust, now ETF – investors’ favorite cryptocurrency tracking ETF before the advent of spot Bitcoin funds – saw $17.2 billion exit.
Grayscale, which lobbied the Securities and Exchange Commission (SEC) for approval to launch spot Bitcoin ETFs, saw its fund assets drop to $17.6 billion from $27.2 billion dollars in February.
“This was a very successful launch for Bitcoin spot ETFs overall, albeit with some wild price swings,” Armor said.
“All nine new Bitcoin funds gathered significant inflows, while Grayscale’s newly converted ETF saw significant outflows.”
Net Inflows for Spot Bitcoin ETFs
Source: Morningstar Direct. Data as of April 30, 2024
The long road to spotting Bitcoin ETFs
The SEC’s approval of the first spot Bitcoin ETFs in January was a highly anticipated development by crypto enthusiasts and fund companies looking to join the fray.
Prior to this, the SEC prohibited ETFs from directly owning Bitcoin. Investors who did not want to directly purchase and hold the cryptocurrency could either invest in the Grayscale Bitcoin Trust or gain exposure through ETFs that tracked the price of bitcoin through futures contracts, such as the ProShares Bitcoin Strategy ETF of 2 billion dollars (BITO). Both types of investments had drawbacks. Grayscale Bitcoin Trust had an expense ratio fee of 2%, and both methods often struggled to keep up with the price of Bitcoin due to their structures.
The Grayscale Bitcoin Trust was the only way U.S. investors could invest in bitcoin directly rather than through futures contracts, in addition to holding the cryptocurrency itself. This is because the SEC did not allow spot Bitcoin ETFs – funds that hold the asset directly, instead of tracking it through futures markets. It rejected several proposals to open spot Bitcoin ETFs after the first request in 2013.
Grayscale sued the agency in 2022 over its refusal to let Grayscale convert its trust into an ETF. The following year, Ark Investments and BlackRock (BLK) attracted more attention by seeking approval to launch bitcoin spot ETFs. Grayscale won its case in August 2023, and on January 10, 2024, the SEC approved 11 ETF proposals. The next day, 10 of them, including Grayscale’s newly converted ETF, began trading.
Total weekly net flows for all Spot Bitcoin ETFs
Data: from January 11, 2024 to April 30, 2024.
Source: Morningstar Direct. Data as of April 30, 2024.
Spot Bitcoin ETF Winners and Losers
Since all the funds hold the same assets, they perform roughly the same, with returns for all hovering around 28% at the end of April since their launch in January.
Despite this almost identical performance, investor reactions to the new ETFs have varied widely. The iShares Bitcoin Trust ETF (I BITE) has received $15.6 billion from investors since its launch and has $16.5 billion in assets. Fidelity Wise Origin Bitcoin ETF (FBTC) saw $8.2 billion coming in, with assets standing at $9.2 billion.
Funds from smaller players like ARK and Bitwise also raked in. The ARK 21Shares Bitcoin ETF (ARKB) raised $2.2 billion and now has total assets of $2.6 billion. Investors poured $1.8 billion into the Bitwise Bitcoin ETF (BITB), which represents $2 billion in assets.
Expense Ratios for Spot Bitcoin ETFs
Source: Morningstar Direct. Data as of April 30, 2024.
The most obvious loser of the deployment was Grayscale. Investors withdrew $17.2 billion from its ETF. Although Grayscale has reduced its ETF fees from 2.0% to 1.5%, this is still six to seven times higher than other cash ETFs, whose expense ratios range from 0.19% to 0. .25%.
Most funds have temporarily reduced or even waived fees at the start of the introductory period. The iShares fund reduced its expense ratio to a reduced rate of 0.12%, while others, including the Fidelity fund, reduced theirs to zero for various introductory periods. Each fund has a different introductory offer and the discount for each expires on a different date.
“Grayscale didn’t want to kill the goose that laid the golden eggs. They had earned over $1 billion in fees from GBTC over the years,” says Armor.
He adds: “Maybe they thought they could be a [SPY-] [SPDR S&P 500 ETF Trust] Or [QQQ] [Invesco QQQ Trust]-as a liquidity vehicle, being the fund “where traders go”. They probably also thought that the switching costs due to capital gains would be high enough to keep people in the fund. »
The author(s) do not hold any shares in any securities mentioned in this article.
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