Crypto ETFs Attract Record Cash amid Regulatory Crisis in the US

BlackRock's application to establish a Bitcoin (BTC) exchange-traded fund (ETF) has ignited a new fever in the digital asset market. There are strong indications that Wall Street giants are trying to claim a piece of the cryptocurrency pie for themselves following the United States' crackdown on 'unregulated' exchanges like Binance and Coinbase.

Bitcoin Spot Market Remains Calm, ETFs in the Lead

Evidence of investors once again favoring ETFs includes the largest influx into ProShares' BITO Bitcoin ETF in a year, which last week totaled $65.3 million. On Friday, the fund traded 500 million shares, something that has only happened five times in the past.

BITO is the first Bitcoin-related ETF launched in the US, which tracks its movements in the futures market. It's also the most popular among large institutional investors. The sudden surge in popularity of cryptocurrency ETFs coincides with a drop in activity on decentralized exchanges like Coinbase and Binance.

The calm in the Bitcoin cash market and inflows into the ETF market suggest a shift in investors' behavior. According to the analytical firm Kaiko, the depth of the cryptocurrency market is currently very 'thin'. Since the start of the year, the crypto market has dropped by 20% and is evidently lacking retail investors. Daily trading volume for BTC is $24 billion, which is a quarter of its volume from 2021 when Bitcoin was testing historical highs.

The lack of activity can be partly attributed to the long-term consolidation of Bitcoin prices, which beat the $30,000 level last week. The price lingered below this psychological threshold for over a year, dropping to lows, such as $15,000 in November 2022.

Adding to this is the tightening regulatory loop in the US and the Securities and Exchange Commission's (SEC) effort to classify an increasing number of cryptocurrency assets as securities. This temporary 'reluctance' to invest in the unregulated space seems understandable.

However, institutional players are taking advantage of this, once again opting for ETFs.

The Bitcoin Futures ETF $BITO had its biggest weekly inflow in a year as assets top $1b again. It also traded half a billion in shares on Friday, which it's only done about 5 times before via @SirYappityyapppic.twitter.com/Xrq0lUaaTO

BlackRock Proposes an ETF, Others Follow

BlackRock, the world's largest asset manager, submitted an application on June 16 to create a spot Bitcoin ETF, sparking a wave of similar applications over the past few days. According to the official filing, BlackRock will use the CME CF Bitcoin Reference Rate to track Bitcoin prices. CF Benchmarks, a subsidiary of the cryptocurrency exchange Kraken, collects price data from renowned cryptocurrency exchanges worldwide.

Last week, Invesco and WisdomTree, two large ETF issuers, made similar moves. Although both entities' applications to create comparable instruments were rejected in the past, the industry hopes that this time may be different. The SEC, which is openly at war with decentralized exchanges, might look more favorably on proposals from regulated entities.

This is the first application for a spot Bitcoin ETF since 2021 for Invesco. WisdomTree also filed a similar application at the time, which was ultimately rejected at the end of 2022.

ProShares' BITO Bitcoin ETF Gains Momentum

ProShares' BITO Bitcoin ETF continues to gain momentum. The BITO fund, a recent beneficiary of the growing popularity of crypto ETFs on Wall Street, has gained almost 60% since the beginning of the year. As noted by Eric Balchunas, the Senior ETF Analyst for Bloomberg, BITO almost perfectly tracks the spot price of Bitcoin, lagging only 1.05% on a yearly basis.

Interesting thing re $BITO, even tho it got trashed by some bc futures roll costs yada yada, it pretty much has tracked bitcoin perfectly. It's lagged spot by 1.05% ann, but it's fee is 0.95% = only 10bps of roll (extra) costs, which is rounding error. Many predicted >5% a yr. pic.twitter.com/5TnQpRA3Ii

"Main drivers of last week’s rally appear to have been several institutional news developments such as the BlackRock attempt to launch a bitcoin ETF. There are however some underlying developments in the bitcoin market that might be giving support to positive price movements," Simon Peters, the Market Analyst at eToro, commented.

BITO prices have yet to catch up to the peak spot prices of Bitcoin and are slightly below this year's highs.

However, if the influx of funds maintains its current high level and more companies submit applications to establish crypto ETFs, overcoming the high of $18.36 in 2023 on the BITO chart seems to be only a matter of time.

UPDATE: @DigitalAssets and @Fidelity is about to make a seismic move in crypto via both $BTC and $ETH. Sources expect Fidelity to either make a bid for @Grayscale or quickly launch their own spot #bitcoin ETF. One or both are coming, soon. **Blackrock and Fidelity will own…

Especially since the market is still anticipating a move from Fidelity and Grayscale.