The approval of U.S. bitcoin exchange-traded funds (ETFs) has been celebrated by crypto enthusiasts as the dawn of a new asset class. However, extending the acceptance of this notoriously volatile cryptocurrency beyond its dedicated followers may face challenges.
A decade in the making, these ETFs provide investors with access to spot bitcoin prices, mitigating risks associated with direct ownership, such as hacking and fraudulent activities. Estimates for first-year inflows vary widely, ranging from $5 billion to $100 billion, with some drawing parallels to the SPDR Gold Shares ETF’s launch in 2004, which granted broader access to precious metals.
Many of the 11 approved ETFs are set to start trading soon. Cathie Wood, founder of Ark Investments, sees this as “a truly new asset class.” Wood, involved in designing one of the approved ETFs in collaboration with 21Shares, emphasizes the goal of enabling more people to access this new asset class rather than focusing solely on profit maximization.
The success of these ETFs in positioning bitcoin alongside traditional asset classes depends on how issuers, including BlackRock, Fidelity, and Van Eck, address the broader investment community’s concerns about risk factors outlined in each ETF’s regulatory filings.
Bitcoin’s brief history has witnessed dramatic rallies and steep drops, often referred to as “crypto winter.” Recent scandals, such as the FTX exchange implosion in 2022, have increased investor wariness. However, proponents argue that ETFs, listed on regulated stock exchanges, can mitigate some risks.
Despite bitcoin’s appeal as a speculative investment, its short track record compared to established asset classes poses challenges for investors predicting its behavior across economic cycles. Some draw parallels between bitcoin and emerging markets or commodities, suggesting that, like those asset classes in the 1990s, understanding bitcoin remains a hurdle for many.
While skeptics like Robert Arnott see bitcoin more as a speculative vehicle than a traditional asset, others highlight its finite supply, with 21 million bitcoins expected to be mined fully by 2140. Proponents emphasize bitcoin’s resistance to inflation, akin to gold.
The anticipated cautious approach of the broader investment community might result in smaller allocations to bitcoin ETFs. However, even modest allocations across a wide investor base could lead to significant inflows, potentially driving bitcoin prices higher. Despite differing opinions, the excitement surrounding the inclusion of bitcoin in the ETF space continues to shape the evolving landscape of cryptocurrency investments.
