The Year in Crypto: Bitcoin and Ethereum ETFs Bring More Investors Into Crypto

This year marked a significant transformation in the crypto landscape with the introduction of spot ETFs for Bitcoin and Ethereum, launched in January and July respectively. These financial products have greatly impacted the way investors interact with cryptocurrencies.

Spot Bitcoin ETFs, in particular, have attracted a substantial amount of capital, allowing investors to gain exposure to Bitcoin (BTC) without needing to handle private keys. They have also helped establish Bitcoin’s legitimacy on Wall Street. Similarly, spot Ethereum ETFs have confirmed Ethereum's regulatory status, and despite initially subdued trading, they have recently gained traction. This momentum may pave the way for similar products for other cryptocurrencies like Solana and XRP in the U.S.

At the start of the year, Bitcoin was priced around $46,000. As we look back nearly a year later, its value has skyrocketed, even reaching over $108,000 in December, driven by the positive sentiment sparked by Donald Trump’s successful election campaign.

Currently, there are eleven spot Bitcoin ETFs that collectively manage around $113 billion in assets. Notably, as reported by CoinGlass, these products hold more Bitcoin than is estimated to have been mined by Satoshi Nakamoto, the mysterious creator of Bitcoin.

"It’s remarkable for a launch to gather such enthusiasm and resources; there hasn’t been anything like it before," noted Bloomberg ETF analyst Eric Balchunas.

These spot Bitcoin ETFs brought an unprecedented level of excitement, legitimacy, and opportunity to cryptocurrency investing. For many investors, the ease of acquiring Bitcoin through these platforms—coupled with the credibility of well-known financial institutions—has shifted the traditional viewpoint of self-custody cryptocurrencies.

Nathan Geraci, president of The ETF Store, indicated that he always had strong confidence in Bitcoin ETFs and predicted they would break historical records. He expressed that the net inflows have been beyond his optimistic forecasts.

BlackRock's Dominance

BlackRock’s iShares Bitcoin Trust ETF (IBIT) took the lead in the market this year, accumulating over $53.5 billion in assets under management (AUM). This success is in stark contrast to Grayscale’s Bitcoin Trust (GBTC), which holds $20 billion in AUM. BlackRock’s CEO, Larry Fink, has been quite vocal in his support for Bitcoin, which has further amplified the ETF's visibility.

Fink transitioned from skepticism to becoming a strong proponent of Bitcoin, viewing it as a potential store of value in an unpredictable economic environment. At one point, IBIT’s AUM surpassed that of BlackRock's Gold ETF, highlighting its significance as an alternative investment.

Despite facing skepticism at the beginning of the year about the potential of Bitcoin ETFs, the market has shown incredible resilience and growth throughout 2023, surprising even the staunchest critics.

A Changing Trading Landscape

Spot Bitcoin ETFs have not only attracted capital but have also transformed Bitcoin trading dynamics. Research from Kaiko, an analytics firm, confirms that these ETFs have ramped up Bitcoin trading activity on exchanges, especially on days when Wall Street is open. This shift reflects the growing integration of Bitcoin into traditional financial markets.

Trump’s reelection sparked a notable price surge for Bitcoin, with IBIT experiencing remarkable trading volume levels, showcasing the growing interest and participation in the crypto market.

In November, amid a spike in Bitcoin prices, IBIT witnessed an astonishing trading volume of $4.1 billion in a single day—outpacing the volumes of major stocks such as Berkshire and Netflix.

Balchunas remarked on the ETF's performance, noting that spot Bitcoin ETFs have continually broken records, including the speed with which BlackRock’s ETF hit various AUM milestones, surpassing $10 billion quicker than any ETF in history.

The SEC's approval of options for these ETFs further enhances their appeal, making it easier for institutional investors to access Bitcoin exposure.

The Grayscale Factor

It’s impossible to discuss the launch of spot Bitcoin ETFs without acknowledging Grayscale’s pivotal role. Once the largest crypto asset manager, Grayscale's legal victory over the SEC cleared the way for ETF approvals. After years of delays, the court ruled that Grayscale's repeated ETF applications were unlawfully denied.

However, while billions flowed out of GBTC amid market changes, Grayscale’s leadership maintained that such outflows were anticipated due to various market factors including competitor pricing. Consequently, Grayscale introduced a new spinoff ETF to offer a more attractive expense ratio.

Ethereum's Development

The SEC’s surprising approval of spot Ethereum ETFs in May took many by surprise, especially given previous uncertainties surrounding Ethereum’s regulatory stance. Yet, despite being validated as a commodity, spot Ethereum ETFs haven't seen the same level of enthusiasm as Bitcoin ETFs. Since July, these products, which now include eight issuers, have attracted only $2.3 billion in inflows, showing a more cautious market attitude.

Investor hesitation regarding Ethereum could stem from a less defined narrative around the cryptocurrency compared to Bitcoin's established position as a store of value.

To date, Bitcoin and Ethereum remain the only digital assets in the U.S. with operational spot ETFs. However, optimism regarding potential future ETFs for cryptocurrencies such as Solana and XRP is on the rise, especially with expectations of a friendlier regulatory environment under the upcoming administration.

As both Bitcoin and Ethereum ETFs continue their journey, they face high expectations for growth and development in the coming year.

Edited by a neutral editorial teamBitcoin, Ethereum, ETFs, Investors, Market