BlackRock and Fidelity Investments have taken a definitive lead in the race to build assets in new Bitcoin exchange-traded funds. But don’t wave the checkered flag yet.
This race won’t be over for a while.
As of Thursday evening, BlackRock’s
iShares Bitcoin Trust
had gathered more than $3 billion since its debut in early January, while the
Fidelity Wise Origin Bitcoin Fund
stood at $2.6 billion, according to Bloomberg Intelligence.
The
Grayscale Bitcoin Trust,
which became an ETF last month after trading like a closed-end fund for years, still had far and away the most assets at $20.6 billion, despite bleeding $5.8 billion since its conversion.
From there, the assets of the other seven funds drop sharply, from the
ARK 21Shares Bitcoin ETF
($684 million), all the way down to the
WisdomTree Bitcoin Fund
($12 million).
But while it is tempting to focus on assets—after all, that is where the funds draw their annual fees from—the real victor in the Bitcoin ETF race will be the fund that generates the most volume and liquidity, says Bloomberg Intelligence ETF analyst Eric Balchunas.
“There’s usually just one powerhouse liquidity beast,” Balchunas says. “Once you have that, it’s hard for anyone to come in and steal your liquidity share.”
Having the most volume is important because it makes a fund more likely to be used by institutional investors. They want the ability to get in and out of trades without moving prices or being detected by other investors.
It also insulates the fund company—at least to some extent—from losing assets even if a new competitor undercuts it on fees, Balchunas notes, pointing to the continued success of the SPDR S&P 500 Trust. That fund’s $491 billion in assets exceeds competitors such as the
Vanguard S&P 500 Index ETF
and
iShares Core S&P 500 ETF
despite having an expense ratio three times as high.
To that end, Thursday was something of a milestone. For the first day since the new ETFs started trading, the iShares ETF had slightly more volume than Grayscale’s fund, according to Bloomberg Intelligence.
But the race isn’t over yet. Fund issuers including Bitwise Asset Management, VanEck, and Grayscale are still flooding the airwaves and websites trying to lure investors.
Last week, a Bitwise representative reached out to Bone Fide Wealth President Douglas Boneparth to sell the advisor on the company’s Bitwise Bitcoin Fund. The Bitwise fund right now is the fifth largest, with $648 million in assets. Part of its selling point is that it is pledging part of its profits to fund Bitcoin open-source development, says Boneparth, who says his firm manages about $90 million.
Even though fund issuers are competing with each other to drum up business, Boneparth said it might take some time for most advisors to dip into the new funds.
“Broker-dealers and wirehouses are still getting an idea of how they want to approach Bitcoin ETFs. Their buy-in matters to whether their advisor networks can or can’t do anything about” the funds, Boneparth said.
Institutional investors await approval in the coming months of options on the ETFs that will make it easier to hedge bets and undertake more complicated investment strategies.
Balchunas said he wouldn’t be surprised if all 10 of the new Bitcoin funds are still in the race a year from now, since many of the fund companies will want to have a toe in digital assets even if their own ETF has stalled.
“Every company has a bunch of sales people and they all know advisors. If an advisor brings up Bitcoin or crypto, they want to have a product. They don’t want to recommend a competitor,” Balchunas said.
The Bitcoin ETF debuts are just the first leg in a race that could last years.
Write to Joe Light at [email protected]
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