Many cryptocurrency funds are betting on the long-term outlook of the two largest cryptocurrencies by market cap; Bitcoin and Ether. This comes despite the intensity of the crypto winter that continues to see different cryptocurrencies lose value.
ETFs bet on Bitcoin and Ethereum
Investment firms do not seem deterred by the crash over the past 11 months as they launched a series of exchange-traded funds (ETFs). These investment firms are betting that top cryptocurrencies and the underlying blockchain technology will prevail.
There are 180 crypto exchange-traded products (ETPs) and trust products worldwide. Half of these funds have been launched since Bitcoin’s bear market commenced. The influx of these funds happened as the total value of the assets dropped 70% amid the bear market.
About 95% of these 180 funds are now concentrating on Bitcoin and Ether, as reported by Morgan Stanley. A key reason investors choose ETPs is that they provide access to digital assets on regulated stock exchanges, enabling both retail and institutional investors to keep their crypto safe during a surge in hacks and thefts.
In 2022, cryptocurrency investment products have attracted around $453 million worth of net inflows. The largest share of this has gone towards Bitcoin and investment vehicles focused on the largest cryptocurrencies.
Eliezer Ndinga, a director of research at 21shares, commented on these numbers saying there was more asset allocation into baskets combining the top five of the top ten largest cryptocurrencies by market cap. Ndinga added that there was importance in the sector to focus on quality compared to alternative assets within the cryptocurrency sector.
Most of the active crypto ETP products are registered outside the United States. However, other countries such as Australia, Canada, Brazil, and Switzerland are at the forefront of offering spot cryptocurrency products.
Crypto funds in the US
In the US, regulators have turned down applications to spot Bitcoin ETFs. Spot Bitcoin ETFs track the price movement of the largest cryptocurrencies. According to the US Securities and Exchange Commission (SEC), the denial of a spot Bitcoin ETF stems from the asset’s vulnerability to price manipulation.
Futures-based funds require that investors carry the additional cost of futures rollover if the settlement day is approaching and they want to keep their position open.
Bitcoin has been on a significant downtrend lately. Over the past three months, Bitcoin has plunged 17%. The ProShares Bitcoin Strategy ETF tracking Bitcoin futures have dropped around 21%. The largest Bitcoin fund, the Grayscale Bitcoin Trust, dropped 34% during the same time.
In the ProShares Bitcoin Strategy ETF, the assets under management dropped to around $600 million in September. When the fund was launched a year ago, it attracted more than $1 billion in investments within a few days. On the Grayscale Bitcoin Trust, the assets under management have dropped to $12.2 billion from more than $30 billion at the end of 2021.
The head of digital assets at WisdomTree commented on the latest decision by the SEC to block its spot Bitcoin ETF saying he was hopeful that the approval would come in the future. Grayscale is suing the SEC for failing to approve its spot Bitcoin ETF application.
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