As Bitcoin hits new heights, will ETFs follow?
The cryptoverse has experienced an explosion following the election of crypto-supporter Donald Trump to the US presidency. Trump, who, as noted by CNN, once said crypto “seems like a scam,” completely changed his view of the industry earlier this year, as the sector rebounded from its disastrous 2022, which included the collapse of crypto exchange FTX and the criminal prosecution of its founder, Sam Bankman-Fried. There are now strong expectations following his victory and what appears to be a Republican sweep of Congress, for him to fulfil his promises: to create a national Bitcoin reserve, to ensure the federal government never sells off its Bitcoin holdings, to support US-based Bitcoin mining, and that he would end regulatory pressure on crypto products by firing Gary Gensler, the Securities and Exchange Commission (SEC) chair, who many see as a barrier to the crypto industry’s growth. In short, anyone who owns cryptocurrency products is now looking to Trump to make the US the “crypto-capital” of the world.
As a result of these expectations, Bitcoin has surged to new highs, up about 30% in the wake of Trump’s election victory, hitting a record of $89,968 on Tuesday, based on data compiled by Bloomberg. In addition, according to SoSoValue data, the 12 Spot Bitcoin ETFs have recorded net inflows for five consecutive days since the election, bringing the total accumulated inflows to over $4.22 billion. There is heightened institutional investor interest as indicated by the significant inflows into these ETFs with BlackRock’s IBIT fund leading the influx with $778.27 million, bringing its cumulative net inflows to a record $28.92 billion since its inception.
EXANTE’s Professional and Institutional clients have been the beneficiaries of this surge in Bitcoin. They held on tight to the asset despite it falling in mid September after the Fed made its initial 50 bps rate cut and there was, at that time, growing uncertainty about the US labour market and whether the Fed could really pull off a soft or even no-landing scenario. They not only continued to hold the asset, but increased their Spot Bitcoin ETFs holdings from 48.7% on 18th August to 51% by 10th November.
Despite losing more of their value in early September than was lost globally, EXANTE’s Professional and Institutional clients knew that this was merely a passing blip. They more than benefitted from those same holdings as the value of these has continued to rise at a faster pace following Fed interest rate cuts and the recent election. The percentage change of their holdings have grown far more than the global average, rising to 37.9% vs 15% globally.
And it is not just Bitcoin ETF investors that have reaped the rewards of patience and belief in the technological importance of cryptocurrencies in the global economy. Ethereum has also benefitted from this positive sentiment. US Spot Ethereum ETFs recorded the largest net inflow since their introduction, adding a record $295.5 million, with BlackRock's ETHA and Fidelity's FETH both gathering a net $100 million, data from SoSoValue shows. This comes despite the US Securities and Exchange Commission (SEC) postponing its decision on the approval of options for Spot Ethereum-based ETFs. The SEC said in a statement last Friday that it is extending the decision period to allow for further analysis and public input, specifically regarding the proposed rule change's compliance with Securities Exchange Act regulations. It says it is concerned about the potential impact of ETFs on preventing market manipulation, protecting investors and ensuring a fair trading system, which falls under Section 6(b)(5) of the Act. What is clear is that the approval of these options on Spot ETFs on Ethereum could have a significant impact on the cryptocurrency market, bringing greater legitimacy and stability to this rapidly growing sector.
EXANTE’s Institutional Investor and Professional clients however, are still optimistic about this asset and have continued to increase both their overall holdings of Ethereum ETFs in their ownership of ETH-linked products and the number of these positions they hold. They now hold more than a quarter of their ETH linked products in these Ethereum ETFs, more than doubling their holdings since these products were first introduced in July. They’ve also increased their holdings of Ethereum ETFs to more than a fifth of their total Ethereum holdings.
As a result of their strong belief in Ethereum products they’ve seen their portfolio values increase far above those of the average investor, gaining 23.7% vs 20.9% by 10 November.
Will the recovery continue for cryptocurrency ETFs?
It appears, prior to Donald Trump’s re-election, that market sentiment around interest rates was the most influencing factor for cryptocurrency ETFs. However, even though the US Federal Reserve may begin to slow the pace and depth of rate cuts, the question for investors remains if we should expect to see a further appreciation of the cryptocurrencies behind these ETFs and hence increasing demand for these ETF assets or if markets will focus on expanding within equities to more interest rate sensitive sectors. However, with promises by President-elect Trump and many of the Republicans that have now swept into Congress to make the US the “crypto capital” and warnings to the SEC that they will want a more “crypto-friendly” regulator, the chances of cryptocurrencies and cryptocurrencies ETFs becoming more embedded into the financial system have improved substantially. Bitcoin’s market cap climbed to a record $1.78 trillion this week, overtaking silver as the eighth-largest asset by market cap on the planet. The majority, $765.5 million, was funnelled into the iShares Bitcoin Trust (IBIT) with Fidelity's FBTC gaining $135.1 million. It is therefore clear that the institutional desire for Bitcoin continues to grow. The daily trading volume for the 12 Spot Bitcoin ETFs, although down to only $5.7 billion on Tuesday, compared to $7.3 billion on Monday, the busiest trading day in over 7 months, was still significantly up from the $2.8 billion last Friday, according to SoSoValue data. So it seems increasingly the case that we may see the proportion of Bitcoin ETF and Ethereum ETF net assets grow as institutional investors seek out other sources of income, particularly those that come with some political promise.
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