The US Securities and Exchange Commission has seen a surge in crypto ETF proposals from fund issuers, drawing significant attention. But the importance of the funds, and the potential market moves they could spur, go beyond just headlines, industry executives told Blockworks.
While spot bitcoin ETFs could bolster the asset’s adoption among newer investors, as well as BTC’s price and liquidity, ether futures ETFs — perhaps set to launch first — could lower bitcoin dominance and drive outperformance for a range of tokens.
Where we’re at
A new wave of spot bitcoin ETFs commenced when BlackRock revealed plans to launch such a product for the first time. Ark Invest and 21Shares had re-filed for a similar product roughly two months prior.
Read more: Did BlackRock have inside info on bitcoin ETF? Bitwise CIO says probably not
Then, Volatility Shares, at the end of July, kicked off what ended up being a surge of filings for ETFs that would hold ether futures contracts.
After roughly 10 years of attempts by fund groups to launch a spot bitcoin ETF, the SEC has never permitted one to come to market. Plans for an Ether futures ETF, submitted to the regulator in May, were paused. At the time, sources informed Blockworks that the regulator had requested this halt.
Earlier this month, sources indicated that the SEC is now ready to consider ether futures ETFs. Volatility Shares noted last week it intends to list its ether futures ETF on Oct. 12, though the SEC could still reject the proposal.
The SEC, meanwhile, could take until early 2024 before ruling on the proposed spot bitcoin ETFs.
The impact of spot BTC funds, if approved
Bakkt CEO Gavin Michael told Blockworks that potential spot bitcoin ETF approval “points to a breath of new life in the industry, and adoption of crypto from investors that had not yet had exposure to the asset class before.”
Assets under management in ETFs was $9.6 trillion in 2022, according to Statista. In addition to being readily available to retail investors on brokerage platforms, ETFs are a preferred tool of financial advisers.
A June survey by the Journal of Financial Planning and the Financial Planning Association found that more than 90% of advisers use or recommend ETFs.
That preference is reflected in adviser attitudes toward crypto, as an April 2022 survey by Nasdaq found that 72% of financial advisers would be more likely to invest client assets in the segment if a spot bitcoin ETF were offered in the US. Similarly, 32% of financial professionals cited “lack of easily accessible investment vehicles like ETFs and mutual funds” as a barrier to crypto allocation, according to a January report by Bitwise and VettaFi.
Michael noted that plans by a company such as BlackRock to launch a bitcoin ETF “act as a stamp of institutional approval to new investment and growth.”
BlackRock — with more than $9 trillion in assets under management — is in a position to offer “unparalleled distribution” for its spot bitcoin ETF, if approved, according to Seth Ginns, head of liquid investments at CoinFund.
“It also continues the trend of opening up new and easier avenues for institutions to own crypto,” Ginns told Blockworks. “Any fund that can own equities can own the bitcoin spot ETF, and it fits more easily into traditional financial plumbing.”
Nearly a dozen firms vying for a spot bitcoin ETF collectively manage around $15 trillion in assets, according to Ruslan Lienkha, the markets chief at Swiss fintech platform YouHodler. Even a tiny portion of this capital shifting to a bitcoin ETF could translate to tens of billions of dollars.
Read more: An approved spot bitcoin ETF could be ‘one of the largest launches in history’
“Thus an ETF approval can boost the price of BTC initially, and then make it more stable and less volatile over time,” Lienkha said in a statement. “Basically, we will see much more liquidity in order books at the main trading venues.”
During a webinar earlier this month, Matt Hougan, chief investment officer of prospective spot bitcoin ETF issuer Bitwise, predicted that a US spot bitcoin ETF could attract $55 billion in net flows in its first five years on the market.
Ether futures funds could spur ‘big token moves’
As for ether futures ETFs, Ginns said those products hitting the market could set ETH on a new trajectory, the way bitcoin futures ETFs did, in part, for BTC.
Bitcoin hit its all-time high price of roughly $69,000 in November 2021 about a month after the launch of the first bitcoin futures ETFs.
While BTC’s price is up about 56% so far in 2023, the price of ETH has increased roughly 37% since the start of the year. The market cap of Bitcoin (BTC) was at $505 billion early Friday afternoon, representing a bitcoin dominance of 46.4%, according to CoinGecko. ETH’s market cap stood at about $198 billion.
“Ether has lagged bitcoin [year to date] and this could be a catalyst for that to reverse, especially given this year’s meaningful technical upgrades,” Ginns said. “We’d expect bitcoin dominance to continue to come down on an ether futures ETF approval, meaning a broad group of tokens should see outperformance.”
The CoinFund executive added that he expects “fundamentally driven tokens” to show strong performance as builders continue to build — and as new launches such as Coinbase’s layer-2 network, Base, and decentralized social network Friend.tech are seeing good engagement.
Ginns said: “If the ETF approvals drive that risk-on, dominance declining environment…we could see big token moves.”