Bitcoin exchange-traded funds (ETFs) have experienced a surge in popularity, contributing to a frenzy that has driven the cryptocurrency’s price toward record highs.
Since their launch on January 11, investors have flocked to these funds at an unprecedented rate, leading to a total of nearly $50 billion in assets across the 10 U.S. spot bitcoin funds available in the market. Notably, BlackRock’s iShares Bitcoin Trust surpassed $10 billion in assets on Thursday, achieving this milestone faster than any other new ETF. Fidelity’s fund, which now boasts over $6 billion in assets, has become the asset manager’s third-largest ETF and has accounted for the majority of its net ETF inflows this year.
According to Todd Rosenbluth, head of research at VettaFi, the demand for these funds has been persistent and robust since their launch. Despite some analysts’ expectations of a slowdown following the initial excitement, the pace of inflows has actually accelerated in recent weeks as bitcoin prices have approached record levels. As of Monday afternoon, bitcoin was trading above $67,000, nearing its November 2021 record of $68,990.90. This marks a significant increase from its value of around $40,000 at the end of 2023 and approximately $23,000 a year ago.
These ETFs provide everyday investors with a convenient way to invest in bitcoin through their brokerage accounts, eliminating the need to navigate crypto exchanges or invest in funds that track bitcoin’s price via futures contracts.
Analysts have pointed out that bitcoin’s rally in the latter half of last year was fueled by anticipation surrounding the approval of ETFs. Now, with investors enthusiastically embracing these funds, analysts believe that this enthusiasm is driving further bullish sentiment and creating additional demand.
According to Todd Rosenbluth, this situation represents a rare instance where the price of the underlying asset (bitcoin) is closely tied to the performance of the ETF. He noted that bitcoin’s performance is influenced by the hope for greater accessibility through these funds, creating a circular benefit.
The BlackRock fund has achieved remarkable success, joining a select group of ETFs with assets surpassing $10 billion. Bloomberg Intelligence reports that only about 4% of the over 3,000 listed U.S. ETFs have reached this asset threshold.
Of the ten bitcoin funds available, nine were newly introduced to the market in January. Notably, Grayscale’s Bitcoin Trust, with nearly $30 billion in existing assets, transitioned into an ETF on the same day as the others’ launch.
Investors have withdrawn over $8 billion from Grayscale’s Bitcoin Trust, largely due to its substantially higher fee compared to its competitors. Grayscale’s annual fee of 1.5% would generate approximately $400 million in annual revenue for the asset manager if the fund’s average assets remained at current levels.
In contrast, BlackRock charges 0.25% after a promotional period, while many smaller asset managers charge even lower fees.
However, not all asset managers view these products as suitable for individual investors given bitcoin’s volatile history of booms and busts. Vanguard, for instance, has expressed no intention to offer a bitcoin ETF and has stated that it will not provide crypto-related products on its brokerage platform, considering bitcoin more of a speculation than an investment.
Registered investment advisers, who play a significant role in directing capital to ETFs, currently have limited access to bitcoin funds. Wealth management platforms at major firms like Morgan Stanley, Merrill Lynch, UBS, and Wells Fargo offer these funds on an unsolicited basis—advisers cannot actively promote them to clients but can purchase them if a client requests.
Analysts anticipate increased demand if adviser platforms expand access to these funds, potentially leading to more inflows.
Some of the new bitcoin funds are competing head-to-head with industry giants from other asset classes in terms of attracting new investments. In February, BlackRock’s bitcoin fund ranked third in terms of attracting capital among all U.S. exchange-traded funds, narrowly surpassing its largest S&P 500 ETF in terms of flows. Fidelity’s bitcoin fund ranked eighth. (The most popular funds in February were Vanguard’s S&P 500 fund and its information-technology fund.)
Currently, there is limited data on who is purchasing these funds. More insights are expected as major investors disclose their fund holdings in quarterly reports. However, trading activity has surged recently, with about $8 billion worth of shares changing hands on Wednesday—the largest trading volume to date, according to Bloomberg Intelligence.
Aniket Ullal, head of ETF data and analytics at CFRA Research, noted the unusual speed at which investors have embraced these funds. Typically, it takes much longer for ETFs to accumulate assets as they await listing on various adviser platforms.