Bitcoin Spot ETF Approved: How Are Ethereum ETFs Profitable?

Recently, news related to approving Bitcoin spot ETF has become a hot topic in crypto asset investment.

Remember that ETFs ( Exchange Traded Funds) are investment instruments traded on exchanges like stocks.

ETFs combine the characteristics of mutual funds and individual stocks. Generally, ETFs include a portfolio of assets representing a specific index, commodity, bond, or sector.

Meanwhile, the main difference between direct investment in stocks or crypto assets and ETFs is that ETFs reflect the performance of the entire market or a particular index, not just a single company or asset.

With the presence of Bitcoin spot ETFs, investors have the opportunity to get involved in the Bitcoin market without needing to buy Bitcoin directly. They can acquire Bitcoin ETF units through stock exchanges, similar to purchasing shares on the stock market. Apart from that, the existence of a Bitcoin ETF also has the potential to have a positive impact on the price movements of this crypto asset in the market.

On the other hand, the advent of Bitcoin ETFs will allow investors to get involved in the Bitcoin market without having to purchase Bitcoin itself directly. Investors can also acquire Bitcoin ETF units through a stock exchange, similar to how shares are purchased on the stock market.

11 Bitcoin ETF Products on the Market

Quoting cnbcindonesia.com Currently, there are eleven (11) Bitcoin ETF (Exchange-Traded Fund) products available on the market, including BlackRock’s iShares Bitcoin Trust (IBIT), ARK 21Shares Bitcoin ETF (ARKB), WisdomTree Bitcoin Fund (BTCW ), Invesco Galaxy Bitcoin ETF (BTCO), and Bitwise Bitcoin ETF (BITB).

Furthermore, there are VanEck Bitcoin Trust (HODL), Franklin Bitcoin ETF (EZBC), Fidelity Wise Origin Bitcoin Trust (FBTC), Valkyrie Bitcoin Fund (BRRR), Grayscale Bitcoin Trust (GBTC), and Hashdex Bitcoin ETF (DEFI).

On the other hand, the presence of Bitcoin ETFs shows that cryptocurrencies are now considered an important asset class in the investment world. In addition, fund managers issuing ETFs can increase liquidity in trading these assets.

Furthermore, the presence of Bitcoin ETFs also makes it easy for investors who may lack experience in the crypto world to acquire these assets easily.

BlackRock Wants to Follow Bitcoin ETFs with an Ethereum ETF

Quoting coindesk.com, not long after the launch of BlackRock’s Bitcoin Exchange-Traded Fund (ETF), the asset management firm’s CEO, Larry Fink, effectively kicked off a marketing campaign for a second ETF product with the crypto asset Ethereum as its underlying, citing the transformative utility value of the blockchain.

However, selling an ether (ETH) ETF could pose an interesting dilemma for the issuer. Investors may have just bought a Bitcoin ETF, so the practical need to refresh the portfolio is already met. Why would they need another crypto diversification tool?

Sui Chung, CEO of CF Benchmarks, an index provider for digital assets and partner of the BlackRock iShares bitcoin ETF (IBIT), has been thinking about that, especially after recently publishing a guide sheet explaining the benefits of bitcoin-backed securities to investors.

In his explanation, Chung also defines Bitcoin technology and its potential applications in finance is part of his explanation.

However, he also believes that is the role of bitcoin ETF investing: small allocations diversify the portfolio and increase overall risk-adjusted returns.

“The main thing is how bitcoin behaves and its price history,” Chung said in an interview.

“When you put bitcoin in a portfolio with stocks, bonds, and cash, it becomes the most powerful diversification in investment history. You put a little bit, and the Sharpe ratio goes up.”

Chung added that it is becoming interesting how mainstream financial institutions, BlackRock, Franklin Templeton, Fidelity, etc, are marketing ETH ETFs to ordinary TradFi investors.

“Because you’re already selling bitcoin by taking the diversification path; someone is already investing 1.5% or 2% of bitcoin into their portfolio.”

In a sense, BlackRock leader Fink has already begun to dive into the complex world of Ethereum by mentioning tokenization, a concept highly valued among TradFi firms today and something that ETF issuers likely also fully believe in.

However, such educational efforts should also explain smart contracts and decentralized finance (DeFi), Chung said, without forgetting the complex issue of blockchain staking and the SEC’s opinion.

Of course, the key difference between Bitcoin and Ethereum is how the latter (Ethereum) moved from an energy-consuming proof-of-work security system to a more environmentally friendly validator model.

Bitcoin Spot ETF Trading Volume Reaches $1.8 Billion on 3rd Trading Day

Quoting blockworks.co/ on Thursday (18/1/2024), spot Bitcoin ETFs recorded a trading volume of approximately $10,000,000,000 in their first three (3) days on the market, with funds from Grayscale Investments and BlackRock continuing to lead in the category.

Grayscale’s newly transformed Bitcoin Trust ETF (GBTC) recorded trading volume on Tuesday of about 25,000,000 shares, or $970,000,000, as found in a review of Yahoo Finance data by Blockworks.

This comes after GBTC volumes of around $2,300,000,000 and $1,800,000,000 on Thursday (11/1/2024) and Friday (12/1/2024). The high trading volume for GBTC did not signal a net outflow of funds. It experienced net outflows of $579,000,000 last week, as revealed in a CoinShares report released on Monday.

Despite being recently converted into an ETF format, GBTC was launched in 2013 and has assets under management of around $27,000,000,000.

Segment observers told Blockworks last week that they expect GBTC to experience outflows over time, partly due to its high fees compared to its competitors, at 1.5%.

On Tuesday (16/1/2024), BlackRock’s iShares Bitcoin Trust (IBIT) saw a trading volume of about 15,000,000 shares, or about $370,000,000.

Meanwhile, about 8,200,000 shares of the Fidelity Wise Origin Bitcoin Fund (FBTC)-worth about $310,000,000-were traded on the day.

In a post, Bloomberg Intelligence analyst Eric Balchunas said that BlackRock’s IBIT is on its way to becoming the fund “most likely to beat GBTC as liquidity king.”

Industry observers cite liquidity-tighter bid-ask spreads and the ability to make large trades without much price influence as key factors that certain investors will consider when deciding which spot Bitcoin ETF to buy.

Spot Bitcoin ETFs by Ark Invest and 21Shares, as well as by competing firm Bitwise, had trading volumes on Tuesday of around $124,000,000 and $52,000,000, respectively.

Other similar offerings by Invesco, VanEck, Franklin Templeton, Valkyrie, and WisdomTree each had volumes of $10,000,000 or less.

Bitwise initially led in net fund flows for the spot Bitcoin ETF. However, BlackRock and Fidelity, traditional financial giants, surpassed the crypto-focused firm after the second day, as shown by Bloomberg Intelligence data.

21Shares president Ophelia Snyder told Blockworks that the initial trading volume reflects pent-up demand, and she expects “a second wave of activity in the coming weeks and months as this becomes more prevalent.”

However, the focus on short-term cash flows into the funds is “very short and largely beside the point,” he added.

“It will increase over time,” Snyder said. “So I think the short-term view is a mistake.”