The Impact of Bitcoin ETF Approvals on the Market
The recent approval of the first spot bitcoin exchange-traded funds (ETFs) in the U.S. is expected to have a significant impact on the market. According to Ophelia Snyder, co-founder of crypto custodian 21Shares, listings on exchanges could occur within days of approval. However, she also noted that assessing the wider effect of these ETFs on the market will likely take months. This is because wealth-management firms need to adhere to various processes before they can add the ETFs to their list of approved allocations.
Snyder explained that the process of adding ETFs to the list of approved allocations typically takes around 90 days. This means that it will take at least a quarter to see the full impact of these ETFs. She emphasized that availability for trading does not automatically mean that every financial adviser in America can buy the ETFs. It requires a lot of compliance for the advisers to add the tickers to their approved list.
Snyder expects the first funds to list on exchanges within two days, similar to the timeline for the ProShares Bitcoin Strategy (BITO) ETF after its approval in October 2021. She mentioned that the standard ETF process usually takes a week or two, and she anticipates that the listing of these bitcoin ETFs will be fast as well.
Timeframe for Wealth Managers to Add Approved ETFs to Allocations
Wealth managers will need at least 90 days to process additions to their list of approved allocations. This means that it will take some time before these managers can start buying the newly approved bitcoin ETFs. Ophelia Snyder, co-founder of 21Shares, emphasized that just because a product is available to trade does not mean that every financial adviser can buy it. There are compliance requirements that need to be met before a ticker can be added to the list of approved allocations.
The process for adding ETFs to the list typically takes 90 days, so it will take at least a quarter to fully gauge the impact of these bitcoin ETFs. During this time, wealth managers will assess the ETFs and evaluate whether to include them in their clients’ portfolios. It is important to note that not all wealth managers will immediately add the bitcoin ETFs to their allocations. The decision to invest in these ETFs will depend on various factors such as the risk tolerance and investment goals of their clients.
Lingering Uncertainties in the Crypto Industry Despite ETF Approvals
While the approval of bitcoin ETFs is a significant milestone for the crypto industry, there are still uncertainties that need to be addressed. Ophelia Snyder highlighted that the approval of ETFs does not offset the Securities and Exchange Commission’s (SEC) doubts about cryptocurrency in general. The SEC Chair, Gary Gensler, has expressed concerns about the crypto industry, citing frauds and bankruptcies, and referring to parts of it as the “Wild West.”
Snyder emphasized that the SEC’s stance on bitcoin and other cryptocurrencies still matters. Investment managers are staking their reputations and careers on the investments they make, and if the SEC decides that bitcoin is illegal, it could have serious consequences. The approval of ETFs does not eliminate the regulatory risks associated with cryptocurrencies. It is important for investors and wealth managers to consider these uncertainties and proceed with caution.
Providers Differentiate Themselves with Fees in the Bitcoin ETF Race
With the approval of bitcoin ETFs, providers are striving to differentiate themselves from their competitors. One of the key areas of differentiation is fees. Initial charges for the approved ETFs ranged from 0.24% to 0.90% of net assets. However, this sparked a race towards the low end, with several providers reducing their fees. Grayscale, for example, plans to charge 1.5% for its Bitcoin Trust (GBTC) ETF, which is higher than the fees offered by other providers.
Grayscale may be relying on its size advantages to offset the higher fee. The investment firm already has more than $27 billion of assets under management even before the approval of its ETF. This allows Grayscale to offer greater volume and liquidity compared to its competitors, who are essentially starting from scratch. Ophelia Snyder believes that Grayscale’s pricing strategy suggests that they may be targeting their existing investor pool rather than expecting significant inflows.
It remains to be seen whether investors will be willing to pay higher fees for Grayscale’s ETF or if they will opt for cheaper options offered by other providers. The competition in the bitcoin ETF market is heating up, and providers are striving to offer competitive fees to attract investors. The next few months will reveal how investors respond to the different fee structures and whether Grayscale’s unique pricing strategy pays off.
In conclusion, the approval of bitcoin ETFs in the U.S. is expected to have a significant impact on the market. However, it will take some time to fully assess this impact as wealth managers need at least 90 days to process additions to their list of approved allocations. Lingering uncertainties in the crypto industry, particularly regarding the SEC’s stance on cryptocurrencies, still pose risks. Providers are differentiating themselves with fees, with Grayscale opting for a higher fee strategy. The coming months will provide more insights into the market dynamics and investor preferences in the bitcoin ETF space.
Analyst comment
Positive news: The approval of bitcoin ETFs in the U.S. is expected to have a significant impact on the market.
Neutral news: Wealth managers will need at least 90 days to process additions to their list of approved allocations. Lingering uncertainties in the crypto industry, particularly regarding the SEC’s stance on cryptocurrencies, still pose risks. Providers are differentiating themselves with fees.
Analyst perspective: The approval of bitcoin ETFs is likely to lead to increased market activity and investor interest. However, the full impact will take time to assess as wealth managers need time to process additions to their list of approved allocations. Lingering uncertainties and regulatory risks should be carefully considered. Providers are competing on fees, and the success of their pricing strategies will depend on investor preferences and market dynamics.
