Will Ethereum and AltCoins be next?
At least eleven US listed ETFs owning spot bitcoin were approved on January 10, the day of the SEC’s regulatory deadline, nearly ten years after the first bitcoin ETF applications were made in 2013. The managers include ARK Investments, Bitwise, BlackRock, Fidelity, Franklin Templeton, Grayscale, Hashdex, Invesco, VanEck, Valkyrie, WisdomTree.
They can be listed on US exchanges including Nasdaq, NYSE and CBOE. Bitcoin itself is traded on over 200 centralised and decentralized exchanges, which can be regulated or unregulated.
In common with most ETFs, they track an index or benchmark of bitcoin prices. These approvals could widen the potential market for Bitcoin. It becomes easier for retail or institutional investors of any size to invest any amount into an ETF, without having to worry about custody issues, wallets, keys and security issues.
The first bitcoin futures based ETF, ProShares Bitcoin Strategy ETF, was approved in 2021. However, futures prices can deviate from the spot price and there can be costs associated with rolling between futures of different maturities. Closed end funds investing in bitcoin also existed for years, such as Grayscale’s Bitcoin Trust (which is now converting to an ETF), but they had higher volatility because they could trade at premiums or discounts to NAV. In contrast, the arbitrage mechanism around creation and redemption of ETF shares and underlying baskets or indices ensures that most ETFs hug their NAVs pretty closely.
Elsewhere in the world, there have been multiple bitcoin and other cryptocurrency ETFs for years on continental European exchanges. However the US is home to the largest pools of savings and capital, so these approvals could be more significant for digital currencies. Regulated Investment Advisers (RIAs), 401K individual pension plans, and larger collective pension funds, will all now find it easier to get access to bitcoin. There are forecasts that tens of billions of dollars could flow into Bitcoin ETFs.
The initial market reaction has been modest for Bitcoin, but Ethereum has risen about 10% over the past 24 hours, at the time of writing, and coins revolving around the Ether ecosystem, such as Chainlink, Polygon and Uniswap, have risen even more. There are high hopes that Ethereum ETFs will soon be approved on US exchanges.
The next frontier could then be AltCoin ETFs listed in the US.