With bitcoin plunging to its lowest in nearly 18 months, it’s important to look at what that could mean in the world of ETFs. VettaFi’s vice chairman, Tom Lydon, was on hand for Yahoo Finance’s “ETF Report” to go over this news, as well as more thoughts on the state of crypto in the ETF market.
As far as what this says about the idea of wider adoption of this crypto space, which people were hoping to see, Lydon explains how crypto ETFs are still looking to get that sort of attention. It is notable how the ProShares Bitcoin Strategy ETF (BITO) came out last fall and grossed over one billion in a matter of days. That, in turn, led to the creation of the Valkyrie Bitcoin Strategy ETF (BTF), the VanEck Bitcoin Strategy ETF (XBTF), and the Grayscale Bitcoin Trust GBTC.
This is all well and good, at least for the time, but a key to what hasn’t exactly allowed the quick gross of those early funds to maintain that momentum is the lack of a true spot bitcoin ETF comparable to something like gold and the gold-backed State Street SPDR ETF (GLD ).
As it stands, there are only futures-based bitcoin ETFs, as the SEC is not comfortable granting that sort of approval. Most investors want to make crypto allocations on trusted brokerage platforms like Charles Schwab and Fidelity.
“With that being said, we actually have more money that’s been going in recently, even though the market’s been declining in that space. But, because it’s down about 66% since these ETFs launched, on a net-positive, we’ve actually seen flows.”
As Lydon notes, this is good news because advisors haven’t seen emotion from those buying ETFs. They tend to buy on the dip, whether they are individual investors or advisors.
In explaining what it will be like to move forward with crypto at a higher rate, Lydon states that it will be tougher due to a lack of demand. That said, anyone that wants to buy into this space has many choices. “A lot of folks, in lieu of a futures-based strategy or a spot strategy, are returning to miners,” Lydon adds. It’s interesting to see the evolution of this decline.
“The key thing is that we survey advisors every year on bitcoin and cryptocurrency. Their interest from their clients continues to rise, and advisors continue to consult with their clients about it. If they are putting allocations in, it’s small.”
Looking at the fund flows and what it will take to get to them, Lydon explains how BITO, while bringing in $822 in the year, is still over a drop of 50% YTD. There haven’t been major swings like there have been for the various cryptocurrencies out there. This is actually a good thing, as those buying ETFs tend to be more rational than emotional. More and more, as far as crypto being adopted by advisors and investors close to retirement, this could be being seen as a great buying opportunity.
Compared to traditional and trusted platforms catering toward retail investors, it’s a fraction when looking at those allocating heavily to the crypto space. With that in mind, Lydon notes that ideally, there will be more trust in crypto down the road, and hopefully, there will be the spot bitcoin ETF, among other similar funds, as confidence grows.
“There is a demand there, and as more time goes on, and there’s more adoption, even though there’s volatility in the marketplace, it’s an opportunity to diversify.”
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