ETFs are bringing crypto into mainstream faster than expected
Bloomberg Professional Services
This analysis is by Bloomberg Intelligence Senior Analyst Eric Balchunas and Analyst James Seyffart. It appeared first on the Bloomberg Terminal.
The ETF industry is helping to propel cryptocurrencies into the mainstream in 2024, as evidenced by crypto’s growing relevance in election campaigns. Ethereum ETF flows should recover from a slow start, and wealth platforms are a potential new source of Bitcoin ETF demand in 2H. Bitcoin ETF options and a crypto index ETF look plausible by year-end.
Cryptos collide with 2024 presidential election
Bitcoin and cryptocurrencies more broadly have become key issues in the 2024 election campaign, and the winner of the November presidential election could influence crypto ETF demand. In his keynote speech at the Bitcoin 2024 conference in Nashville, former President Donald Trump touched on an array of promises for the Bitcoin and crypto industry.
The day of Trump’s speech, Kamala Harris’ campaign was reported to be looking to “reset relations” with the crypto industry, trying to reverse the Biden administration’s anti-crypto momentum.
Ethereum ETFs may reverse slow flow start
US Ethereum ETFs combined for net outflows on four of the first six days of trading, bringing the total so far to $404 million. This isn’t likely to continue, with massive outflows from Grayscale’s ETHE set to slow in the next few weeks. Before launch, we expected the ETFs to have 15-25% of the trading volume, flows and assets of Bitcoin ETFs in their first six months. More than 15% is still possible. Ether ETFs have traded $5.4 billion, 32% of the Bitcoin ETFs’ $16.7 billion in their first six days. Slowing outflows from ETHE will likely decrease volume.
Excluding ETHE’s outflows, the eight other Ether ETFs have $1.32 billion of inflows.
Options possible in 2H, not guaranteed
The SEC is likely to approve an application to list and trade options on spot Bitcoin ETFs by the Sept. 21 deadline, we believe. Yet there’s also work required from the Options Clearing Corp. that would then need approval from the Commodity Futures Trading Commission. Unlike the SEC, there’s no deadline for the CFTC — highlighted by the lack of movement on a 2010 OCC filing attempting to list options on a pair of platinum and palladium ETFs.
We think the SEC would appear to be acting in an arbitrary and capricious manner if it denied options on spot Bitcoin ETFs while allowing the trading of options on ETFs tracking Bitcoin and Ethereum futures, as well as leveraged and inverse Bitcoin returns.
Platforms likely approve Bitcoin ETFs in 2H
The largest wealth-management providers haven’t given their advisers a full green light to buy Bitcoin ETFs, but we agree with BlackRock that some platforms will do so by year-end. Companies including UBS, Credit Suisse, Morgan Stanley, Bank of America, JPMorgan and Goldman Sachs control over $5 trillion of client wealth. They often have a tiered system for handling investments. Each is different, but to oversimplify, the bottom tier of ETFs can’t be purchased. In the middle tier, where Bitcoin ETFs commonly reside today, an ETF can only be bought after certain requirements are met, such as a client directly requesting it (unsolicited).
The final tier is a list of approved ETFs that the adviser can purchase and actively recommend to clients (solicited).