May 20, 2024

How Spot Bitcoin ETFs Could Cannibalize 150 Crypto Funds Across The Globe

On Dec. 25, BitMEX Research published a complete list of cryptocurrency-related exchange-traded products (ETPs)

It reported that there were 150 crypto-related ETPs across the world with $50.3 billion in assets under management.

The firm noted that it could be useful in “determining the extent to which the spot Bitcoin ETF cannibalizes existing ETPs or attracts new capital into the cryptocurrency space.”

Cannibalizing Crypto ETPs 

Funds could simply flow from these existing products into new spot BTC ETFs.

Grayscale’s Bitcoin Trust (GBTC) is the largest of them all, with $27 billion in assets under management.

It is already established and has a solid investor base. However, Grayscale could be left behind if the SEC approves rival spot products but does not let it convert its fund at the same time. 

Last week, Grayscale CEO Michael Sonnenshein said it would put them “in a terrible spot if they [the SEC] were to disadvantage the hundreds of thousands of investors in GBTC thinking about other products coming to market before it.”

The expectation is that the twelve or so firms waiting for the SEC will see their products approved altogether in early January. 

There is unlikely to be a massive immediate demand shock for BTC, and it appears that markets have already factored in the potential ETF approvals. 

However, the demand will occur over time as Bitcoin becomes a mainstream asset. Analyst Willy Woo commented that “the day is coming fast when Bitcoin becomes a mainstream bucket for wealth allocation.”

He said, “The top 1% most wealthy will hold 0.87 BTC,” assuming there is a 5% portfolio allocation. 

Are ETFs Good For Bitcoin? 

However, BitMEX founder Arthur Hayes predicted gloomier scenario where ETFs managed by traditional finance institutions could completely destroy Bitcoin.

He opined that a handful of firms could eventually hold and control all the BTC, rendering the blockchain network useless. 

In related news, the SEC has told issuers that applications that are fully finished and filed by Friday, Dec. 29, will be considered in the first wave.

Several issuers, including BlackRock, Wisdomtree, and Ark, amended their filings last week to accept cash creation and redemptions.

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