US bitcoin ETF trades soar to US$4.6 billion on first day after landmark SEC approval

Grayscale, BlackRock and Fidelity dominated trading volumes, the LSEG data showed.

“Trading volumes have been relatively strong for new ETF products,” said Todd Rosenbluth, strategist at VettaFi. “But this is a longer race than just a single day’s trading.

Some executives called out bitcoin as a high-risk investment, and Vanguard – the largest provider of mutual funds – said it had no plans to make the new batch of spot bitcoin ETFs available on its platform to its brokerage clients.

The SEC had earlier rejected all spot bitcoin ETFs on investor protection concerns. SEC chairman Gary Gensler said in a statement on Wednesday that the approvals were not an endorsement of bitcoin, calling it a “speculative, volatile asset”.

The ETF launches lifted the price of bitcoin up to its highest level since December 2021. It was last up 0.77 per cent at US$46,303, while the price of ether, the second-largest cryptocurrency, was up 2.79 per cent at US$2597.95.

RACE FOR MARKET SHARE

The regulatory nod sparked intense competition for market share among the issuers, some of whom slashed the fees for their products well below the US ETF industry’s standard even before Thursday’s launch.

Fees on the new bitcoin ETFs range from 0.2 per cent to 1.5 per cent, with many firms also offering to waive fees entirely for a certain period or for a certain dollar volume of assets. After its ETF started trading, Valkyrie cut its fees a second time to 0.25 per cent and waived them for the first three months.

Grayscale was approved to convert its existing bitcoin trust into an ETF on Thursday, overnight creating the world’s largest bitcoin ETF with more than US$28 billion in assets under management.

Estimates for how much spot bitcoin ETFs could reel in vary widely. Analysts at Bernstein estimated that flows will build up gradually to cross US$10 billion in 2024, while Standard Chartered analysts this week said the ETFs could draw US$50 billion to US$100 billion this year alone. Other analysts have said inflows could be US$55 billion over five years.

As the ETFs began trading on Thursday, market participants were closely watching bid-ask spreads: the difference between the price for a trader to buy into an ETF and the price it can be sold. ETFs with narrower spreads are typically viewed as more desirable.

Trading volume, internal plumbing and the number of participants involved “are critically important to driving the spreads to a good spot”, said Jason Stoneberg, director of product strategy at Invesco, whose ETF with Galaxy Digital debuted on Thursday.

Some analysts cautioned that the euphoria around the approval might be premature. The broader investment community still views cryptocurrencies as risky, with scandals such as the implosion of crypto exchange FTX in 2022 adding to investors’ wariness.

A Vanguard spokeswoman said the firm had no plans to launch its own crypto investment products, and that its focus remains on core asset classes such as stocks, bonds and cash, which it views “as the blocks of a well-balanced, long-term investment portfolio”.

Speaking at a webinar on Thursday, Sharmin Mossavar-Rahmani, head of the Investment Strategy Group and chief investment officer of wealth management at Goldman Sachs, said cryptocurrencies had no place in an investment portfolio.

“When you think about it, where is there any value to something like bitcoin?” she said. “We don’t think it is an asset class to invest in.”

CRYPTO STOCKS GAIN

Still, some expect the products to pave the way for even more innovative crypto ETFs, including spot ether products.

Grayscale CEO Michael Sonnenshein said in an interview Thursday that the firm plans to file for a covered call ETF in an effort to allow investors to generate income from options on its spot bitcoin product.

Cryptocurrency-related stocks initially climbed higher on Thursday, but ended the day lower, with bitcoin miners Riot Platforms and Marathon Digital dropping 15.8 per cent and 12.6 per cent respectively.

Bitcoin investor Microstrategy fell 5.2 per cent and crypto exchange Coinbase 6.7 per cent. The ProShares Bitcoin Strategy ETF, which tracks bitcoin futures, gained 0.44 per cent.

Also on Thursday, Circle Internet Financial, the company behind stablecoin USDC, said it had confidentially filed for a US initial public offering. Circle controls the issuance and governance of USDC, a cryptocurrency pegged to the US dollar.