The Race to Build Bitcoin ETFs

BlackRock and Fidelity Investments have emerged as leading players in the competition to establish Bitcoin exchange-traded funds (ETFs). However, the race is still far from over.

Despite its recent transformation into an ETF after operating as a closed-end fund for years, the Grayscale Bitcoin Trust remains dominant with a staggering $20.6 billion in assets. Nevertheless, it has experienced a significant outflow of $5.8 billion since its conversion.

Conversely, the other seven funds witness a sharp decline in assets. From the ARK 21Shares Bitcoin ETF with $684 million to the WisdomTree Bitcoin Fund with just $12 million.

While it may seem logical to gravitate towards assets, the true winner in the Bitcoin ETF race will be the fund that generates the highest volume and liquidity, emphasizes Bloomberg Intelligence ETF analyst Eric Balchunas.

“Typically, there is one dominant player in terms of liquidity,” says Balchunas. “Once you establish that position, it becomes challenging for others to capture your share.”

Having a significant volume is crucial as it attracts institutional investors who seek seamless trade execution without impacting prices or alerting competitors.

Moreover, maintaining a high volume shields the fund company to some extent from losing assets, even if a new competitor offers lower fees. Balchunas cites the example of the SPDR S&P 500 Trust, which boasts $491 billion in assets and outperforms rivals like the Vanguard S&P 500 Index ETF and iShares Core S&P 500 ETF, despite having a three times higher expense ratio.

Thus, Thursday marked a significant milestone as, for the first time since the commencement of trading for the new ETFs, the iShares ETF slightly outperformed Grayscale’s fund in terms of volume, according to Bloomberg Intelligence.

The Race Continues: Bitcoin Fund Issuers Compete for Investors

Several fund issuers, including Bitwise Asset Management, VanEck, and Grayscale, are actively vying for the attention of potential investors. Despite the fierce competition, it may take some time for most advisors to venture into these new funds.

According to Bone Fide Wealth President Douglas Boneparth, a Bitwise representative recently approached him to pitch the company’s Bitwise Bitcoin Fund. Currently the fifth-largest fund with $648 million in assets, the Bitwise fund differentiates itself by pledging a portion of its profits towards Bitcoin open-source development. Boneparth, who oversees about $90 million in assets, noted that broker-dealers and wirehouses are still determining their approach to Bitcoin ETFs. Their level of buy-in will ultimately determine what advisors can or cannot do with these funds.

Institutional investors are eagerly anticipating the approval of options on the ETFs in the coming months, as this will make it easier for them to hedge their bets and pursue more intricate investment strategies.

Eric Balchunas, a Senior ETF Analyst at Bloomberg Intelligence, believes that all ten of the new Bitcoin funds will likely remain in the race for at least another year. Even if their own ETFs encounter setbacks, many fund companies view having exposure to digital assets as crucial, ensuring they have a product to offer when advisors mention Bitcoin or crypto.

The debut of Bitcoin ETFs is merely the initial stage of a marathon that could potentially last for years. As the industry evolves and regulatory hurdles are overcome, these funds will continue to attract attention from both investors and financial service providers.