The newly launched bitcoin exchange-traded funds are showing early signs of success, but they have so far fallen short of being the massive boost for crypto some bulls predicted. The funds began trading Jan. 11 after receiving approval from the U.S. Securities and Exchange Commission, and ETFs from iShares ( IBIT ) and Fidelity Wise Origin ( FBTC ) have already raked in more than $1 billion of cash from investors in fewer than 10 trading days. Despite those quick milestones, reviews of the launches have been somewhat tepid. Citi analyst Alex Saunders said in a Jan. 19 note to clients that inflows “have disappointed the most optimistic of expectations.” In his own Jan. 19 note, Barclays analyst Benjamin Budish deemed the first-week flows “marginally positive.” The launches have also proved to be a “sell the news” event for bitcoin itself, which rallied late last year in anticipation of the approval. The price of bitcoin was trading below $41,000 Monday, down from more than $49,000 at one point on the launch day for the ETFs. BTC.CM= YTD mountain Bitcoin has retreated since the launch of the bitcoin ETFs. This fall comes after some crypto investors had cited the ETF launches as a catalyst that could propel bitcoin to $100,000 in 2024. The idea behind those predictions was that the ease of buying ETFs would attract new investors who were previously scared away from crypto. Aniket Ullal, head of ETF data and analytics at CFRA Research, described the launches as “a solid start, but not spectacular,” and said it was difficult to get a good estimate on how the funds would do before the launch. “Nobody was quite sure what the demand was out of the gate. Because, obviously we know there was a lot of excitement around the launch, but how much of that would translate? And therefore I think there wasn’t a good consensus of what a good outcome looks like,” Ullal said. The flow data would look much stronger if the Grayscale Bitcoin Trust (GBTC) was excluded. The fund had more than $28 billion in bitcoin when it was converted from an over-the-counter trust to an ETF, but it has seen more than $2 billion of outflows since then. Some outflows were expected from GBTC, due to its higher cost relative to other funds and the fact that it regularly traded at a large discount to its net asset value as an over-the-counter product. That discount likely attracted arbitrage players who used the ETF launch as an opportunity to close out their trade. “It’s not out of line with expectations. Considering that their fees are way higher than the other ones, I don’t think it’s that bad,” Ullal said. All of the other new funds are seeing inflows, even if some are trailing far behind the likes of IBIT and FBTC. While the first week for the funds may not have met some outsize expectations, early inflows have been quite large by ETF standards. For comparison, only two ETFs that launched in 2023 ended the year with more than $1 billion in net inflows, according to FactSet, and both of those launched in the first half of the year. Just eight new funds ended the year with more than $500 million in net inflows. Trading volume has also been strong, a sign that the funds should have staying power. “$12B of cumulative trading volume in 4 trading days is a ‘successful launch’. Yesterday, all Bitcoin ETFs combined traded $2.2Bn, IBIT traded $340Mn. In comparison, SPDR Gold ETF (GLD) trades ~$1.2bn daily,” Bernstein analyst Gautam Chhugani said in a Jan. 18 note to clients. Another thing to keep in mind when evaluating new ETFs is that a launch does not mean all financial advisors are able to buy the funds on day one. Some brokerage platforms have rules around metrics such as track record and trading volume that need to be met before new funds are added. “If bitcoin prices stay fairly stable, I do feel like [there] could be longer term demand here as asset managers get into the brokerage firms and advisors get more comfortable with it,” Ullal said.
