A look at crypto ETF milestones in 2023 — and where spot bitcoin funds stand

Several crypto ETF firsts in 2023 have perhaps been overshadowed by the unresolved spot bitcoin ETF saga.

Volatility Shares launched the first leveraged bitcoin futures ETF in the United States. The US Securities and Exchange Commission also gave ether futures funds the green light — two years to the month after the first BTC futures ETFs hit the market.

While Volatility Shares’ 2x Bitcoin Strategy ETF (BITX) has grown to roughly $170 million in assets, the initial interest in ether futures ETFs has left many underwhelmed.

The six ether futures ETFs that launched on Oct. 2 had combined assets under management of about $34 million, as of Dec. 20. The Valkyrie Bitcoin and Ether Strategy ETF (BTF), which changed its investment strategy to include investments in ether futures contracts at that time, has had flat net flows since then, according to ETF.com data.

As for crypto funds seeing investor interest of late, the first and largest bitcoin futures ETF — the ProShares Bitcoin Strategy ETF (BITO) — saw its assets under management peak at $1.7 billion earlier this month, according to YCharts data.

But Bloomberg Intelligence analyst Eric Balchunas said on Bloomberg TV last month there could be an “exodus” of assets from BITO when spot bitcoin ETFs are approved.

Funds that hold bitcoin directly — proposed by a range of fund groups over the past decade — have not yet gained the regulatory go-ahead, however.

The SEC is also considering planned spot ether ETFs — another 2023 development currently taking a back seat to the bitcoin ETF race.

Read more: With all eyes on bitcoin ETF decision, SEC kicks ether can down the road

As investors await a ruling on spot ETFs, some have more recently turned to funds investing in blockchain- and crypto-related stocks.

Such funds had seen record weekly inflows in the first half of December, according to CoinShares data. The Amplify Transformational Data Sharing ETF (BLOK) has been the main beneficiary, notching $267 million of net inflows from Dec. 1 to Dec. 20, according to ETF.com.

Spot bitcoin ETF saga coming to a head?

The list of issuers trying to launch a spot bitcoin ETF continues to grow, with Tidal Investments and 7RCC filing for a fund that would hold BTC and carbon credit futures contracts.

The SEC’s deadline to rule on a spot bitcoin ETF proposal by Ark Invest and 21Shares is Jan. 10. The regulator could choose to approve or deny other similar funds — including those from traditional finance giants BlackRock and Fidelity — at that time.

Read more: Lucky 13? Where spot bitcoin ETF proposals stand ahead of judgment day

Fund firms have been meeting with SEC officials in recent weeks to discuss their planned bitcoin funds. BlackRock has had five such meetings, including one on Tuesday. Grayscale, which continues trying to convert its Bitcoin Trust (GBTC) to an ETF after its August court win against the SEC, also met with the regulator this week.

BlackRock and Grayscale in a battle to see who can clock more SEC meetings. I think it’s like 5-4 BlackRock. Poss foreshadow of the asset/volume battle a year from now.. https://t.co/LXjfm0b0hu

— Eric Balchunas (@EricBalchunas) December 20, 2023

A topic of conversation has been in-kind and cash creation and redemption models for the funds, according to meeting memorandums.

Grayscale appears to be arguing in-kind transactions are more efficient, but acknowledged not all authorized participants can facilitate them for bitcoin funds — suggesting that spot bitcoin ETFs should offer both models.

Bloomberg Intelligence analysts continue to put the chance of spot bitcoin ETF approval by Jan. 10 at 90% amid the continuous meetings and application amendments.

The ongoing discussions between the SEC and those vying to launch such products support the “base case” of Compass Point & Research that the regulator will OK bitcoin ETFs next month, analysts Chase White and Joe Flynn said in a Dec. 15 research note.

“However, with meetings still happening and the holidays coming up, we think there’s a chance the SEC isn’t quite ready to approve ETFs in early [January] and will ask Ark Invest/21Shares…to refile the application to give the SEC more time, rather than reject it outright,” they added.

Neena Mishra, director of ETF research at Zacks Investment Research, previously told Blockworks that if spot bitcoin ETFs are approved, “the debut of ether spot ETFs would not be far behind.”

Expected big impact for BTC funds

Segment observers expect that spot bitcoin ETFs would see significant investor interest if allowed to launch, which in turn could spur BTC’s price to jump.

Bitwise Chief Investment Officer Matt Hougan said during a webinar in August that his firm estimates that US spot bitcoin ETFs could attract $55 billion in net flows in their first five years on the market.

Galaxy Digital research associate Charles Yu said in an October report that a projected $14.4 billion of year-one inflows into spot bitcoin ETFs could cause the price of bitcoin to increase by 74% in the 12 months following approval.

Yu’s research analyzed the impact gold ETFs had on the precious metal’s price.

In the shorter term, VanEck research analysts predict spot bitcoin ETFs could see $1 billion of inflows in their first few days and roughly $2.4 billion within a quarter.

Samir Kerbage, chief investment officer at Hashdex, said in a webinar earlier this month that he too expects between $1 billion and $10 billion to flow into such products in the first few weeks and months. The size of spot bitcoin ETFs would then be set to “grow exponentially” in the coming years, he added.

Read more: An approved spot bitcoin ETF could be ‘one of the largest launches in history’

“People may be overestimating the short-term impact of a bitcoin ETF being approved in the US,” he said. “And I think they are underestimating the long-term effect.”

“Once you have regulatory clarity from the most respected and largest securities regulator on the planet that this is something investment funds can have in their portfolio, that RIAs could start [getting] into or exchanges can list trusts…that’s going to be big validation for bitcoin,” he added.

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