By Vicky Ge Huang
Bitcoin went mainstream in 2024 thanks to the roaring launch of the first U.S. exchange-traded funds to hold the cryptocurrency and Donald Trump's surprise embrace of digital assets. Some investors are skeptical that smaller tokens like solana and XRP will follow the same path.
Bitcoin prices have more than doubled this year and soared 40 % since Election Day on hopes that a second Trump administration will usher in a golden age for digital currencies.
Everyday investors have piled into a class of 12 new funds known as spot bitcoin ETFs that allow them to purchase bitcoin in their brokerage accounts as easily as stocks. The funds have attracted $36 billion of new money since their launch, while assets have swelled to about $116 billion, thanks to the monster rally in prices.
Investors and analysts say the success of the ETFs has played a crucial role in fueling bitcoin's run. Collectively, the 12 funds own more than one million bitcoins, making them the largest collective holder of the cryptocurrency in the world, according to data compiled by Bloomberg Intelligence analyst Eric Balchunas.
"Our estimates were blown away, and we were on the more optimistic side, " said Balchunas.
The resurgence of bitcoin and the wild success of the ETFs appeared improbable just two years ago, when the implosion of Sam Bankman-Fried's FTX exchange drove the cryptocurrency's price below $16,000. Bitcoin skeptics argue its short history has been dotted with furious rallies and spectacular crashes, and it has no place in the portfolios of mainstream investors.
BlackRock and Fidelity have emerged as early winners of the bitcoin ETF race. With $56 billion in assets, the iShares Bitcoin Trust is the world's largest bitcoin fund and the most successful ETF launch in history based on inflows. At Fidelity, the Wise Origin Bitcoin ETF has swelled to become the company's largest ETF with $21 billion in assets.
Hoping to seize on the momentum, asset managers are jockeying to put smaller and riskier tokens into ETFs.
VanEck, Bitwise Asset Management and 21Shares have filed applications to launch ETFs that would hold tokens including solana and Ripple Labs' XRP. Canary Capital, a three-month-old firm, has filed to launch funds that would hold even more niche tokens such as litecoin and hedera. And Grayscale Investments is hoping to convert its multitoken fund, which holds bitcoin, ether, solana, XRP and Avalanche blockchain's AVAX token, into an ETF.
Those asset managers face an uphill battle. ETFs holding ether -- the second-largest cryptocurrency -- are already on the market and have drawn tepid interest from investors. The nine existing funds have recorded just $2.5 billion in net inflows since their July debut.
Smaller tokens have faced scrutiny from the Securities and Exchange Commission under Chair Gary Gensler. His office labeled dozens of cryptocurrencies, including solana and XRP, as unregistered securities that have been sold illegally to the public. Gensler intends to resign when Trump takes office.
The SEC recently rejected filings from stock exchanges to list solana ETFs on behalf of several asset managers, according to people familiar with the matter.
Bitcoin bulls suggest the Trump administration might be friendlier. The president-elect has nominated Paul Atkins, a crypto consultant who has questioned the SEC's approach to the industry, as the agency's next chair.
"ETF issuers are going to get aggressive," said Nate Geraci, president of ETF Store, an investment-advisory firm. "It would not surprise me to see more asset managers filing for all kinds of alt-coin ETFs. There's really limited downside to throwing their hat in the ring early here."
Even if regulators approve their launch, analysts question whether demand exists for such products.
"I think advisers look at bitcoin as this potential store of value, risk asset and digital gold," said Grant Engelbart, an investment strategist at Carson Group. "It's more difficult to understand ether and the underlying value that it provides. I don't think too many advisers know about solana and some of these other cryptocurrencies."
Mike Akins, founder of ETF Action, an investment analytics platform, said he strongly disagrees with the idea that simply because the largest asset managers are building products around bitcoin, that somehow makes it a good investment.
"Asset managers' jobs are to build products where there is demand from their clients so they can charge fees on it," said Akins, a veteran in the ETF industry. "Let us not forget they also had no problem packaging up subprime mortgages and delivering them to their clients."
Write to Vicky Ge Huang at vicky.huang@wsj.com
(END) Dow Jones Newswires
December 20, 2024 05:30 ET (10:30 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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