More and more funds are betting on bitcoin and ether’s long-term value, which is a risky move in the middle of a crypto winter.
Price drops over the past 11 months haven’t stopped investment firms from releasing a flood of exchange-traded funds. They do this because they believe that elite cryptocurrencies and the technology behind them will eventually win out.
Morgan Stanley (NYSE:MS) said in a note that came out this month that of the more than 180 active crypto exchange traded products (ETPs) and trust products around the world, half have come out since the bitcoin bear market began. During that time, the value of all assets on the market fell by 70%, to $24 billion, as the price of cryptocurrencies fell.
Morgan Stanley said that about 95% of these 180 funds are focused on the top two coins, bitcoin and ether.
“When the market is slower, prices are lower, and people have lost money, it’s natural for people to lose interest,” said Chen Arad, co-founder of the company Solidus Labs, which tracks crypto risks. But that isn’t true in the long run. I don’t think anyone is giving up as a whole.
ETPs are appealing because they give investors access to digital assets on a regulated stock exchange. This means that individual and institutional investors don’t have to worry about keeping their crypto safe or avoiding hacks and heists.
According to a report from digital asset manager Coinshares, cryptocurrency investment products have brought in about $453 million in net new money this year. Most of that money went into bitcoin and investment vehicles that included the biggest cryptocurrencies.
At 21shares, director of research, said, “More assets are being put into baskets that include the top five or ten crypto assets by market cap. This is a flight to quality compared to other assets in the crypto industry.”
Solana, Cardano, and Ripple are three other major cryptocurrencies.
ONE BY ONE
Most active crypto ETP products are registered outside of the US. Switzerland, Canada, Australia, and Brazil are racing ahead with spot crypto offerings.
One reason is that U.S. regulators have turned down several applications for tick-by-tick copies of bitcoin’s price called “spot bitcoin funds.” Among other things, this is because the spot funds’ underlying assets don’t have any agreements with regulated markets to share surveillance information.
To keep their position, investors in futures-based funds often have to pay the extra cost of the futures rollover as the day of settlement nears.
In the last three months, bitcoin has lost 17% of its value, while the ETF that tracks bitcoin futures, ProShares Bitcoin Strategy, has lost about 21%. Grayscale Bitcoin Trust, the biggest bitcoin fund in the world, is down 34% in the same time period.
Assets under management (AUM) for the ProShares Bitcoin Strategy ETF have gone down to just over $600 million as of the end of September, according to data from Refinitiv Lipper. When it came out a year ago, it made more than $1 billion in just a few days.
At Grayscale’s Bitcoin Trust, the AUM has dropped from more than $30 billion at the end of 2021 to $12.2 billion, according to data from the company.
Will Peck, who is in charge of digital assets at WisdomTree and whose spot bitcoin ETF was blocked by U.S. regulators last week, said he wasn’t surprised by the decision but was hopeful that a deal could be made.
“I think we’ll get there in the end, but for the time being, we’ll be in a holding pattern.”
Crypto funds’ allure: https://graphics.reuters.com/FINTECH-CRYPTO/WEEKLY/lgpdwrydyvo/chart.png