The Year in Crypto: Bitcoin and Ethereum ETFs Bring More Investors Into Crypto

This year has marked a significant transformation in the cryptocurrency world with the introduction of spot ETFs for Bitcoin and Ethereum. The Bitcoin ETFs launched in January and the Ethereum ETFs in July have created a buzz in the crypto community and attracted many institutional investors.

Spot Bitcoin ETFs have seen a large influx of capital, allowing investors to invest in Bitcoin (BTC) without needing to manage private keys. This has also added a layer of legitimacy to Bitcoin in traditional finance circles. On the other hand, spot Ethereum ETFs have helped clarify the regulatory standing of Ethereum, despite their initial quiet entry into the market. Recently, they have gained traction and paved the way for other potential ETFs centered around assets like Solana and XRP in the U.S.

When Bitcoin ETFs began trading in January, Bitcoin's price stood at approximately $46,000. Fast forward to December, and Bitcoin's price more than doubled, even reaching over $108,000 after Donald Trump won the White House.

As of now, eleven spot Bitcoin ETFs hold a collective total of $113 billion in assets under management (AUM), according to CoinGlass. Bloomberg ETF analyst Eric Balchunas indicated earlier that these products could accumulate more than the 1.1 million Bitcoin that Satoshi Nakamoto, Bitcoin's mysterious creator, mined.

That symbolic marker was surpassed just two days later, highlighting the extraordinary nature of this launch. Balchunas noted, "This stuff is an anomaly in physics. There has never been a launch like this, and there will never be another one." He emphasized how these spot Bitcoin ETFs brought excitement, opportunity, and even legitimacy to the market, allowing investors to engage with Bitcoin through trusted brokerage accounts.

This marked a shift away from the belief that “not your keys, not your coins,” often repeated in the wake of the FTX collapse in 2022, which suggested that self-custody was the only valid method of owning crypto. For many investors, the ease of gaining Bitcoin exposure without needing to manage private keys became increasingly appealing by 2024.

Nathan Geraci, president of The ETF Store, expressed that he had always been optimistic about Bitcoin ETFs. He predicted record-breaking launches and noted that the actual inflows exceeded even his strong expectations.

BlackRock's Impact on Bitcoin ETFs

BlackRock, the world’s largest asset manager, has emerged as a key player this year with its iShares Bitcoin Trust ETF (IBIT), which boasts more than $53.5 billion in AUM. This eclipses Grayscale’s Bitcoin Trust (GBTC), which is the second-largest spot Bitcoin ETF at $20 billion. BlackRock CEO Larry Fink has been vocal about Bitcoin, shifting from skepticism to calling it a “potential long-term store of value.” He has mentioned Bitcoin multiple times as an investment opportunity for those concerned about the global economic climate.

Bitcoin advocates often draw comparisons to “digital gold,” and in November, IBIT’s assets exceeded those of BlackRock’s iShares Gold ETF (IAU). At the time of writing, IBIT ranked 32nd among all ETFs in the U.S. by AUM.

While many analysts believe BlackRock’s entry into the crypto space has helped to reduce the stigma surrounding it, Geraci warned that the stellar growth of Bitcoin ETFs was not guaranteed as many had initially doubted that this category would reach $100 billion in assets this year.

Redistributing Market Dynamics

Spot Bitcoin ETFs not only attracted significant financial inflows but also improved Bitcoin’s trading structure. A report from analytics firm Kaiko revealed that the approval of spot Bitcoin ETFs led to increased trading volumes on crypto exchanges, ultimately solidifying the market's capacity to handle large orders effectively. Moreover, trading for Bitcoin shifted to weekdays when traditional markets are operational.

Significantly, Trump’s reelection campaign injected new energy into Bitcoin prices, culminating in a record-setting rally that saw Bitcoin surge past $75,000 on November 6, the day following the election. BlackRock's offering, IBIT, facilitated a new trading environment for Bitcoin.

On November 6, IBIT experienced a staggering $1 billion in trading volume within just 20 minutes, ending the day at a total volume of $4.1 billion. This level of activity was comparable to leading stocks like Berkshire and Netflix, demonstrating the growing interest in Bitcoin ETFs.

Balchunas highlighted that spot Bitcoin ETFs have continued to break records throughout the year in various areas, from trading volumes to initial inflows. IBIT reached $10 billion in AUM at a speed unprecedented for any ETF, and it was the first to hit $50 billion faster than any other ETF in history.

In October, when the SEC authorized trading options for spot Bitcoin ETFs, experts noted that this development would simplify and lower the cost of Bitcoin accessibility for institutional investors.

Grayscale's Legal Journey

Grayscale has played a critical role in the establishment of spot Bitcoin ETFs. Previously, Grayscale led the crypto asset management industry, and its legal success against the SEC paved the way for the eventual approval of these products. The SEC delayed approvals for a decade due to concerns about market manipulation. However, last August, the U.S. Court of Appeals ruled that the SEC's denial of Grayscale’s ETF application was unlawful.

Despite the considerable outflows from GBTC this year, estimated at about $21 billion, Grayscale's then-CEO acknowledged that these outflows were expected, particularly due to bankrupt crypto firms being compelled to liquidate their GBTC holdings. Additionally, the higher expense ratio of GBTC, compared to competitors, further contributed to these outflows. Grayscale then launched a spinoff ETF of GBTC with a more competitive expense ratio of 0.15%.

A similar trend of outflows was observed with Grayscale's Ethereum Trust (ETHE), which faced over $1 billion in withdrawals during its initial trading days as a full-fledged ETF. After launching a spinoff ETF for ETHE, the outflows were stabilized, but they impacted investor interest during the launch of spot Ethereum ETFs.

Ethereum and Future Prospects

The approval of spot Ethereum ETFs came as a surprise, as many were doubtful under SEC Chair Gary Gensler. However, in May, the SEC approved the applications, which also suggested that Ethereum is not viewed by the SEC as a security. This crucial distinction facilitated the ETF market for Ethereum.

Despite this regulatory green light, the inflows into spot Ethereum ETFs have been lower than those for Bitcoin ETFs. Furthermore, the Ethereum products have had $3.6 billion in outflows, while attracting $2.3 billion in inflows since their debut in July.

Ethereum's price didn’t receive the same boost from its ETFs as Bitcoin did. After peaking around $4,100 in December, Ethereum's price fell back to approximately $3,400, and it has not yet reached its previous all-time high as of 2024. Investors may be less familiar with Ethereum compared to Bitcoin; therefore, Ethereum's broader narrative and appeal are relatively unclear outside of crypto enthusiasts.

Bitcoin continues to stand out as the only established store of value, while Ethereum is seen through various lenses, making it a more complex asset. David Lawant, Head of Research at FlaconX noted that "Ethereum is a different beast." Hence, Bitcoin and Ethereum remain the only digital assets with spot ETFs in the U.S. But, with an anticipated crypto-friendly administration, several asset managers are eyeing opportunities for ETFs based on other digital assets, including Solana, XRP, and even Dogecoin.

The fate of these potential applications for new ETFs may ultimately depend on the next SEC leader. Meanwhile, Bitcoin and Ethereum ETFs continue to trade, raising the bar for the future.

Bitcoin, Ethereum, ETFs, Investors, Crypto