MW Why the debut of Bitcoin ETFs may not be the best news for crypto stocks, futures ETFs
By Frances Yue
While the crypto space at large celebrates the arrival of spot bitcoin ETFs, some could see their market share squeezed
The long-awaited debut of the first spot bitcoin exchange-traded funds in the U.S. is widely seen as a major boost to the crypto space at large. Still, that doesn't mean the ETFs will benefit everyone - such as existing bitcoin-related products that could see their market share diminished, according to analysts.
The U.S. Securities and Exchange Commission on Wednesday for the first time greenlighted 11 ETFs investing directly in bitcoin (BTCUSD). The funds given the all-clear include: Grayscale Bitcoin Trust GBTC, Bitwise Bitcoin ETF BITB, Hashdex Bitcoin ETF DEFI, Blackrock's iShares Bitcoin Trust IBIT, Valkyrie Bitcoin Fund BRRR, ARK 21Shares Bitcoin ETF ARKB, Invesco Galaxy Bitcoin ETF BTCO, VanEck Bitcoin Trust HODL, WisdomTree Bitcoin Fund BTCW, Fidelity Wise Origin Bitcoin Fund FBTC and the Franklin Bitcoin ETF EZBC.
Read: Bitcoin ETFs finally approved after a chaotic, 'embarrassing' 24 hours for SEC
The ETFs have already seen a total of $2.3 billion in trading volume in their first few hours of trading, according to Eric Balchunas, senior ETF analyst at Bloomberg.
The arrival of spot bitcoin ETFs will "make the cake bigger" by unlocking more capital to flow into the crypto space, said Youwei Yang, chief economist at BIT Mining.
It is likely that spot bitcoin ETF issuers will put great effort into advertising their products, according to Greg Beard, chief executive at Stronghold Digital Mining $(SDIG)$. Such efforts could increase investors' awareness of bitcoin as "it is being validated by some of the most trusted names in finance, such as Blackrock $(BLK)$ and Fidelity," Beard said.
On the flip side, however, bitcoin futures ETFs may see their market share shrink with the arrival of fresh competition, according to Mark Connors, director of research at 3iQ.
The SEC first approved a bitcoin futures ETF in late 2021, and for years rejected all applications for ETFs that invest directly in bitcoin. The agency had argued that bitcoin spot markets could not be sufficiently surveilled to prevent fraud and manipulation, while bitcoin futures markets were overseen by registered futures exchanges with sophisticated surveillance capabilities.
The situation started to change last August, when a federal judge ruled that the SEC's reasons for denying an application by Grayscale Investments to list a bitcoin ETF were "arbitrary and capricious" and in violation of federal administrative law.
Now that spot bitcoin ETFs are in the market, some traders may still choose bitcoin futures ETFs as they might be more liquid or could be used for arbitrages. "But as far as a bitcoin proxy, I don't see a benefit of it," Connors said.
Investors have been concerned about the so-called "contango" dynamic for bitcoin futures ETFs, where the funds would suffer a loss when renewing their forward contracts if the longer futures price is higher than the expiring one on the date of renewal.
ProShares Bitcoin Strategy ETF BITO, which is based on bitcoin futures, was up 0.2% to $22.40 on Thursday, according to FactSet data, while VanEck Bitcoin Strategy ETF XBTF was up 0.9% to $41.70.
Meanwhile, bitcoin-related equities, such as crypto miners and MicroStrategy $(MSTR)$, may also suffer from short-term outflows as investors seeking bitcoin exposure shift their attention to spot bitcoin ETFs. But those stocks could still benefit in the long term as they present different advantages for investors, noted Connors.
Bitcoin-mining stocks could be viewed as leveraged bitcoin holders, according to Stronghold's Beard, as they tend to capture a higher margin when bitcoin's price rises.
Shares of crypto miner Riot Platforms $(RIOT)$ fell 15.2% to $13.19 on Thursday, according to Dow Jones Market Data. Marathon Digital Holdings $(MARA)$'s shares lost 14.1% to $22.02, and Ebang International Holdings $(EBON)$'s stock declined 8.3% to $11.17.
Read: Don't assume Coinbase's stock will benefit from the bitcoin ETF, analysts say
For the spot bitcoin ETFs that started trading on Thursday, it may take time to see which product will win more market share, noted Ric Edelman, founder of the Digital Assets Council of Financial Professionals. Each bitcoin ETF has different advantages, and investors will likely end up selecting the product that suits them the most, he said.
Funds managed by traditional Wall Street firms may be able to capture significant interest early on, as "most financial advisors will tend to choose the firms they already know and work with, rather than trying to find somebody new that they're not as familiar with," according to Edelman .
However, crypto-native firms such as BitWise may attract interest from those who prefer to work with firms with deep expertise in the digital-asset industry, he added.
BlackRock's iShares Bitcoin Trust fell 4.2% to $26.78 on Thursday. Fidelity Wise Origin Bitcoin Fund dropped 2.5% to $40.93, while Bitwise Bitcoin ETF rose 2.8% to $25.69.
-Frances Yue
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(END) Dow Jones Newswires
January 11, 2024 13:27 ET (18:27 GMT)
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