© Reuters. FILE PHOTO: In this illustration taken on October 24, 2023, physical representations of the cryptocurrency bitcoin are seen. REUTERS/Dado Ruvic/Illustration/File Photo
By Manya Saini, Niket Nishant and Hannah Lang
(Reuters) – Several exchange-traded funds (ETFs) linked to the spot price of bitcoin began trading in the United States on Thursday in a historic moment for the cryptocurrency industry that will test the broader acceptance of digital assets as an investment. .
The green light from the US Securities and Exchange Commission finally came late Wednesday, after a decade-long fight with the crypto industry.
Eleven spot bitcoin ETFs, including BlackRock's (NYSE:) iShares Trust, Grayscale Bitcoin Trust, Valkyrie Bitcoin Fund, and ARK 21Shares Bitcoin ETF, among others, began trading Thursday morning, kicking off fierce competition for shares of market.
“The approval has the potential to simplify and secure bitcoin investments for a broader investor base, which can reshape the dynamics of cryptocurrency investments,” said Rajeev Bamra, senior vice president of digital finance at Moody's (NYSE:) Investors Service.
The ETF launches lifted the price of bitcoin to its highest level since December 2021. It was last up 0.16% at $46,021, while the price of ether, the second-largest cryptocurrency, rose 2.42 %.
RACE FOR MARKET SHARE
The regulatory nod is expected to start intense competition for market share among issuers, some of which cut fees on their products well below the U.S. ETF industry standard even before Thursday's launch.
Fees on new bitcoin ETFs range from 0.2% to 1.5%, and many companies offer to waive fees entirely for a certain period of time. For short-term speculators looking to buy and withdraw products, liquidity could be a more important factor.
Grayscale, which was approved to convert its current bitcoin fund into an ETF, on Thursday touted its product as the world's largest bitcoin ETF, with more than $28 billion in assets under management.
Bernstein analysts estimated that bitcoin ETF flows will gradually build up to surpass $10 billion in 2024 on their race toward $80 billion by the end of next year. Other analysts have said inflows could reach $55 billion over five years.
When ETFs began trading on Thursday, market participants were closely watching bid-ask spreads – the difference between the price a trader can buy the ETF and the price at which it can be sold. ETFs with tighter spreads are often considered more desirable.
“In any ETF, there are a number of things that are going to factor into what the spread is going to be: the amount of trading volume certainly has a big impact, and then other elements…on the plumbing side, the amount of participants who are involved in the product,” said Jason Stoneberg, director of product strategy at Invesco, whose Galaxy Digital ETF debuted Thursday.
“All of these things are vitally important to bring spreads to a good level.”
Some analysts warned that the euphoria around the approval could be premature. The broader investment community still views cryptocurrencies as risky, and scandals like the implosion of cryptocurrency exchange FTX in 2022 increase investor caution.
“Care must be taken not to conflate price gains with broader predictions that cryptocurrencies will overtake traditional finance,” analysts at Deutsche Bank said in a note, adding that volatility in bitcoin prices is likely to persist. .
In a webinar on Thursday, Sharmin Mossavar-Rahmani, head of the Investment Strategy Group and chief investment officer of Wealth Management at Goldman Sachs, said cryptocurrencies had no place in an investment portfolio.
“When you think about it, what value is something like bitcoin?” he said. “We don't think it's an asset class to invest in.”
The SEC had previously rejected all spot bitcoin ETFs on investor protection grounds. SEC Chairman Gary Gensler said in a statement Wednesday that the approvals were not an endorsement of bitcoin, calling it a “speculative and volatile asset” that is also used to finance crime.
CRYPTO STOCKS WIN
Cryptocurrency-related stocks initially rose on Thursday but ultimately fell, with bitcoin miners Riot Platforms (NASDAQ 🙂 and Marathon Digital (NASDAQ 🙂) falling more than 12%.
Bitcoin investor Microstrategy (NASDAQ 🙂 fell 4.2% and cryptocurrency exchange Coinbase (NASDAQ 🙂 fell 5.4%. The ProShares Bitcoin Strategy ETF, which tracks bitcoin futures, lost 0.4%.
Shares of retail-focused brokerage Robinhood (NASDAQ 🙂 fell 3.1%.
Also on Thursday, Circle Internet Financial, the company behind the USDC stablecoin, said it had confidentially filed for an initial public offering in the United States. Circle controls the issuance and governance of USDC, a cryptocurrency pegged to the US dollar.
