The Securities and Exchange Commission’s historic approval of spot bitcoin exchange-traded funds (ETFs) last week has seen billions pour into the new investment vehicles. As predicted, significant capital from existing crypto investment products has flowed into the spot bitcoin ETFs, validating years of pent-up demand.
Over $4 Billion Enters Spot Bitcoin ETFs in First Week
In their first five days of trading, the spot bitcoin ETFs saw over $4 billion in trading volume. The ETFs from asset managers like BlackRock and Ark Invest saw heavy demand from both institutional and retail investors.
“There was a lot of anticipation building up to these launches, and now we’re seeing that demand play out,” said Mathew McDermott, head of digital assets at Goldman Sachs. “These products have opened the crypto markets to a broad new class of investors.”
The largest spot bitcoin ETF, from BlackRock’s iShares division, saw over $3 billion in volume in its first 3 days of trading. Other ETFs like Ark Invest’s ARKB fund and Bitwise’s BITQ also attracted over $500 million each.
|iShares Bitcoin ETF
|ARK Next Generation Internet ETF
|Bitwise Bitcoin Strategy ETF
This immediate inflow represents a major vote of confidence for the cryptocurrency from big finance. BlackRock, the world’s largest asset manager with over $10 trillion in assets, launched their spot bitcoin ETF the same day the SEC gave its approval.
“BlackRock diving headfirst into crypto spotlights that big money is finally embracing bitcoin,” said Antoni Trenchev, co-founder of crypto lender Nexo.
Capital Flowing from Existing Crypto Funds
The billions in inflows aren’t coming out of thin air. As JPMorgan noted in a report, most of the money entering the spot bitcoin ETFs is likely being reallocated from existing cryptocurrency investment products like the Grayscale Bitcoin Trust (GBTC).
GBTC, which has $20 billion in assets, has long been popular for indirectly getting exposure to bitcoin’s price movements. But the fund has historically traded at a discount to its underlying BTC holdings. The newly approved spot bitcoin ETFs don’t have this problem.
“It offers a better structure than trusts like GBTC,” said Marcus Sotiriou, analyst at digital asset broker GlobalBlock. “The flows we are seeing are likely from investors switching out of vehicles like that.”
This migration from products like GBTC is widely expected to continue in the coming weeks. In total, JPMorgan estimates there is roughly $36 billion in existing crypto investment products that could flow into the new spot bitcoin ETFs.
Did the SEC Twitter Hack Accelerate Approvals?
In a bizarre incident days before the first approval, the SEC’s official Twitter account was hacked. The hacker tweeted that the SEC’s “X” account had approved spot bitcoin ETFs. Though untrue, the incident drew widespread attention.
It also added pressure on SEC Chairman Gary Gensler to approve a spot bitcoin ETF sooner. Just days later on January 10, the SEC surprised observers by officially approving two spot bitcoin ETFs immediately.
“The Twitter hack was unethical, but it kept a spotlight on the years-long wait for a bitcoin ETF,” said Senator Cynthia Lummis (R-WY), a vocal crypto proponent. “So in an odd way, it may have actually accelerated the approval process.”
Gensler cited robust crypto trading infrastructure and stricter regulation as reasons why the SEC finally felt comfortable approving spot bitcoin ETFs. Previously, the SEC had rejected over a dozen spot bitcoin ETF applications since 2013 before this January’s sudden change of heart.
What Comes Next
The record-setting volumes are likely just the beginning. Investor awareness of the new spot bitcoin ETFs is still low, so inflows could accelerate as the funds gain mainstream attention.
And more fund providers are still eagerly awaiting SEC approval. Over 10 additional spot bitcoin ETF applications remain pending, including proposals from heavyweights like Fidelity and New York Digital Investment Group (NYDIG). As these roll out, expect more billions to flood the space.
Further out, crypto observers think spot ETFs for other digital assets could be in the cards.
“Now that the seal’s been broken with a bitcoin ETF, it does potentially clear the path for ETFs around other crypto assets like ethereum,” said Ben Cruikshank, head of Flourish, Fidelity’s crypto platform.
Indeed, investors have already submitted proposals for ethereum ETFs to the SEC. While the regulator isn’t likely to approve those in the immediate near term, the historic bitcoin ETF could pave the way for more crypto-based ETF products
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