Strong investor interest has been seen in a recent batch of U.S. bitcoin exchange-traded funds (ETFs), but it’s uncertain if the inflows will continue at this rate in the coming weeks.

In the first three days of trading, investors poured $1.9 billion into nine new exchange-traded funds that track the spot price of bitcoin, according to data from issuers and analysts. The majority of the flows were received by fund giants BlackRock, opens new tab, and Fidelity.

All of the funds’ combined inflows exceeded the ProShares Bitcoin Strategy ETF’s post-launch inflows, which attracted a record $1.2 billion in the first three days of trading following its 2021 launch.

Within three days of its 2004 launch, the SPDR Gold Shares ETF drew $1.13 billion in investors.

Even yet, the investments in the eagerly anticipated exchange-traded funds (ETFs) did not reach the most optimistic projections of billion-dollar first-day flows, which were made on January 11th, the day after the SEC gave its permission.

Market participants stated that it was unclear which issuers will succeed and to what extent funds tracking the infamously volatile cryptocurrency will continue to attract institutional and ordinary investors. By year’s end, flows may amount to between $50 billion and $100 billion, according to certain optimistic estimates.

Since January 11, Bitcoin has dropped more than 8%, despite having risen in recent months on hopes that the ETFs will eventually receive SEC approval.

“The launches have nearly lived up to the hype thus far,” stated Todd Sohn, a Strategas ETF analyst. “The following query is: How long will they last? When six months or six years from now, how will those flows look?

For the time being, it seems that the main attractions for investors are reduced fees and brand awareness. According to BitMEX Research, a cryptocurrency research and analysis business, the iShares Bitcoin Trust ETF (IBIT.O), opens new tab from asset management behemoth BlackRock, has drawn more than $700 million, while Fidelity’s Wise Origin Bitcoin Fund has reached $500 million.

Before waivers, the fees charged by the nine issuers range from 0.19% to 0.39%.

For the first $5 billion in assets and the first 12 months of trading, BlackRock is imposing a 0.12% fee. The cost will then increase to 0.25% after that. Fidelity charges nothing at first, then 0.25% after July 31. Even so, those costs will be lower than half of the typical ETF charge of 0.54%, as determined by Morningstar Inc.

“Fees are clearly a key determinant for success,” said Sui Chung, CEO of CF Benchmarks, which is providing the index against which six of the new ETFs will be measured.

“Those that charge the lower management fees will unsurprisingly make themselves more appealing compared to their peers. Brand recognition is another core aspect.”

Although Fidelity and BlackRock have led inflows, other issuers that enjoy a strong brand among bitcoin enthusiasts aren’t far behind.

At first, costs are being waived by Bitwise as well as a joint venture between Ark Investments and 21Shares. While the Ark/21Shares ETF has seen inflows of about $230 million, according to BitMEX, Bitwise reported that its inflows in the first three days exceeded $305.5 million.

In contrast, there have been withdrawals from the 1.5% fee Grayscale Bitcoin Trust (GBTC) this month. According to data from BitMEX, the trust had $1.16 billion in withdrawals in its first three trading days after being transformed into an ETF at the same time that the other ETFs were introduced.

Founder of the boutique wealth management advice business TwinFocus, Paul Karger, reports that some of his clients are switching from holding GBTC to the less expensive new ETFs.

“We’re seeing a shift from GBTC to the new, lower-cost ETFs, as well as some clients putting more money to work in the cheaper options” from major issuers, he said.

In contrast to the recently released products, Grayscale had significant assets at the time of its conversion, according to CEO Michael Sonnenshein, allowing investors to lock in profits following the rise of Bitcoin. On the fringes of the World Economic Forum in Davos, he told Reuters that the firm’s fees “reflect a certain value that it brings to the market and to investors.”

Grayscale “has a history spanning ten years.” It boasts a diverse shareholder base, tight spreads, unimaginable liquidity, and about twenty billion dollars in assets under management, according to Sonnenshein.

The funds’ next challenge will probably be to show that they can gain the support of institutional investors, such pension funds and investment advisers.

Steve Kurz, head of asset management at Galaxy Digital, stated prior to the ETF’s launch last week that “the question of what to do with these in a portfolio has been drowned out by a lot of the noise” surrounding the introduction of the new products. One of the nine new spot bitcoin ETFs, the Invesco Galaxy Bitcoin ETF, was introduced by Galaxy in collaboration with Invesco.

In the next six months, he said, the process of discussing the proper allocation and how spot bitcoin ETFs would “work their way into model portfolios” will become clearer.

(Adapted from ThePrint.in)

Categories: Economy & Finance, Strategy, Uncategorized