Will ETFs transform the cryptoverse?

Following on from the news on 23 May that the SEC approved Ethereum ETFs, there has been increasing inflows into Ethereum. However, as noted by Cointelegraph.com, over $3 billion worth of Ether has been removed from centralised crypto exchanges since SEC approval— signalling a potential upcoming supply squeeze. According to CryptoQuant data, the amount of Ether on exchanges fell by around 797,000 between 23 May 23 and 2 June — equivalent to $3.02 billion.

Like the rest of the market, EXANTE’s Professional and Institutional clients were affected by the SEC approval of Ethereum ETFs. This is reflected in the small, but still important, change in Ethereum product holdings. In the course of less than a trading week, we have seen EXANTE Professional and Institutional clients begin to reduce their holdings of Ethereum ETP products and react to the rising value of Ethereum in their holdings of Ethereum CFDs.

As Ether ETFs are not expected to actually be traded for several weeks as the SEC still has tor review and approve each of the eight funds' individual S-1 filings, it does appear that EXANTE’s Professional and Institutional clients are getting ever more positive about cryptocurrency ETFs by the still increasing the number of positions they hold of Bitcoin ETFs relative to Bitcoin CFDs despite the recent two week downtrend in Bitcoin. The NAV or total value held for Spot Bitcoin ETFs was-1.4% compared with the wider market at -1.6%.

Holdings of Bitcoin ETFs by EXANTE’s Professional and Institutional clients now stand at 51.86% on 2 June  from 49.30% on 28 April. while Bitcoin CFD holdings have fallen from 46.75% on 28 April to 43.81% by 2 June. In short, EXANTE’s Professional and Institutional clients are still strong believers in Spot Bitcoin ETFs. This makes sense as Spot Bitcoin ETFs have continued to see substantial inflows according to data from Farside. This data showed that Spot Bitcoin exchange-traded funds in the United States have seen inflows of $1.16 billion between 28 May and 4 June. The Spot Bitcoin ETF products' cumulative total net inflow since their listings was $11.848 billion on 4 June.

Will the inflows in crypto continue only for US products?

Although we’ve seen billions flow into the US Bitcoin ETF products since January, European bitcoin exchange traded products have suffered outflows every month this year. Even though there appears to be interest in these products in Europe, with the FCA, the UK financial regulator, announcing in March that it would approve the sale of Bitcoin ETPs to professional investors on the London Stock Exchange. According to Morningstar data, Bitcoin ETPs domiciled in Europe have lost $506 million since the start of this year, while other crypto ETPs attracted small net inflows of $42 million. This, as noted by the Financial Times, may be due to the lower fees charged by US bitcoin ETFs. This is forcing European issuers to reduce their charges. 

It’s clear that the prospect of multiple cryptocurrency ETFs will change both the cryptocurrency landscape and the ability of institutional investors to diversify their portfolios. And, given the initial interest and even investor confidence in cryptocurrencies, it could propel Ethereum’s price further, potentially widening out across the broader crypto market. There is every expectation that we will likely see more instances of institutional investors testing this asset class through small positions suggesting that, over the longer term, this new asset class instrument will see significant inflows. For now the market will need to prepare for a variety of potential outcomes: that the SEC takes months and not weeks to approve the S-1 filings, that Grayscale will convert its Grayscale Ethereum Trust into a spot instrument with high fees which will result in outflows as was the case with its Bitcoin ETF offering, and even that the price of Ether may be artificially suppressed due to bets on the spot Ether ETF taking longer than expected. Nevertheless, the flow into these new ETF products is likely to continue as the global interest rate environment softens and investors may be looking for greater diversification to improve returns.

While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.