Flurry Of Funds Bet On New Allure For Bitcoin

NEW YORK CITY – A growing number of funds are betting on bitcoin and ether’s long-term appeal, a risky bet in the midst of crypto winter.

Unfazed by a price drop over the last 11 months, investment firms have launched a flood of exchange-traded funds, betting that elite cryptocurrencies and their underlying technology will triumph in the end.

Morgan Stanley said in a note published this month that half of the world’s active crypto exchange-traded products (ETPs) and trust products have launched since the bitcoin bear market began. The proliferation occurred despite the fact that the total market value of assets fell 70% to RM113.21 billion during that time period as crypto prices plummeted.

About 95% of those 180 funds are focused on the top two coins, bitcoin and ether , Morgan Stanley said.

“Naturally when the market is slower, prices are lower, people have lost money, the intensity of the appetite does diminish,” said Chen Arad, co-founder of crypto risk monitoring firm Solidus Labs. “But it’s not the case in the long run. As a whole, I don’t think anyone is giving up.”

The attraction of ETPs is that they provide exposure to digital assets on a regulated stock exchange, so retail and institutional investors don’t have to worry about securely storing their crypto and eluding hacks and heists.

In terms of money, cryptocurrency investment products have attracted about RM2136.80 million in net inflows this year with much of it going into bitcoin and investment vehicles that include the biggest cryptocurrencies, according to a report from digital asset manager Coinshares.

“There is more asset allocation towards baskets that combine the top five or 10 crypto assets by market cap. It’s a flight to quality compared to alternative assets in the crypto industry,” said Eliezer Ndinga, director of research at 21shares.

Other major cryptocurrencies include solana , cardano and ripple .

Clock is Ticking

Reuters Graphics

Reuters Graphics

Most active crypto ETP products are registered outside the United States, though, with Switzerland, Canada, Australia and Brazil racing ahead with spot crypto offerings.

One reason is that U.S. regulators have turned down several applications for spot bitcoin funds, which mirror the cryptocurrency’s price movements tick-by-tick, citing multiple reasons including a lack of surveillance-sharing agreements with regulated markets relating to the spot funds’ underlying assets.

Investors in futures-based funds must often shoulder the additional cost of the futures rollover as contracts approach settlement day, to maintain their position.

Bitcoin has lost 17% in the past three months, while ProShares Bitcoin Strategy’s ETF , which tracks bitcoin futures, has shed about 21%. The world’s largest bitcoin fund, Grayscale Bitcoin Trust (GBTC.PK), is down 34% in the same time.

ProShares Bitcoin Strategy ETF, has seen assets under management (AUM) shrink to just over RM2830.20 million as of the end of September, according to Refinitiv Lipper data. At its debut a year ago it pulled in over RM4.72 billion in a matter of days.

At Grayscale’s Bitcoin Trust, the AUM have tumbled to RM57.55 billion from over RM141.51 billion at the end of 2021, data from the firm showed.

Will Peck, head of digital assets at WisdomTree, whose spot bitcoin ETF was blocked by U.S. watchdogs last week, said he wasn’t surprised by the decision, but expressed hope that an agreement could be reached.

“I think we’ll ultimately get there. But we’ll be in a holding pattern for the foreseeable future.” – Reuters

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