Bitcoin ETFs are gaining popularity for their greater ability to replicate the evolution of the world’s leading cryptocurrency. Without even having been approved in the United States, an important part of the sector already treats them as an existential threat to the funds based on the price of the futures that preceded them, as published by Bloomberg.
Large managers like BlackRock lead a group of companies that are awaiting approval from regulators to launch the first ETFs in the United States, linked to the spot price of Bitcoin. Others like Grayscale Investments also remain in the fight after winning a legal victory in their desire to convert their $16 billion Bitcoin ‘reserve’ into an exchange-traded fund. Analysts are optimistic about the prospects, given the relevance of the issuers involved.
Until now, the closest option for fund investors in the United States to invest in the cryptocurrency was through products that tracked Bitcoin futures contracts. When these funds debuted in October 2021, they broke records, but the furor subsided afterward, and their combined market value has remained at about $1 billion since then.
The advent of spot-based ETFs, which analysts argue would track currency prices more closely and at potentially lower costs, could threaten the futures funds that have come before them. “We would expect assets and volume to be concentrated in one or several Bitcoin spot ETFs because they are more interesting products for most types of investors,” notes James Seyffart, analyst at Bloomberg Intelligence. “The new money, especially that looking to buy and hold for longer periods, will be attracted to a spot product, which is also likely to be cheaper and more efficient than the current futures ETFs on US exchanges,” he adds. .
A potential of 100,000 million
If approved, the US spot Bitcoin ETF market has the potential to become a $100 billion behemoth over time, according to Bloomberg Intelligence estimates. Bitcoin futures ETFs, of which the roughly $914 million ProShares Bitcoin Strategy ETF (ticker BITO) is by far the largest, received a warm welcome because their approval marked an essential moment for the cryptocurrency industry. After a long fight for these funds in the United States, the issuers finally managed to attract investors with a product that offered easier exposure to the digital asset market.
However, the funds have lagged Bitcoin’s tally this year. The delay can be explained, at least in part, by the specific futures contracts held by ETFs and the expenses associated with rolling them over as they expire, BI’s Seyffart has found. These rollover costs reduce returns, causing the funds’ performance to become decoupled from the asset they track. “BTC futures ETFs will likely see significant outflows if Bitcoin spot ETFs are tested,” said Vetle Lunde of K33. “They are much less direct in addition to incurring higher costs due to renewals, which leads to lower performance over time.”
With spot ETFs more likely than futures-based ones to reflect supply and demand in real time, their introduction may cause a “migration of trading activity and liquidity” away from the US Bitcoin futures markets, “to the extent that Bitcoin spot ETFs replace Bitcoin futures ETFs,” JPMorgan strategist Nikolaos Panigirtzoglou wrote in a July note.
A ProShares spokesperson said: “Investor demand for BITO, the world’s largest Bitcoin ETF, remains strong, with average daily trading volume of nearly $135 million in 2023, placing it in the top 5%. of all US ETFs A regulated futures market offers strong custody protections and robust liquidity, making BITO an attractive option for investors seeking exposure to Bitcoin.”
