The Place of Crypto ETFs Amid Growing Economic Uncertainties

Daniele Casamassima, CEO at Pure.

The evolution of the cryptocurrency industry has given rise to some financial products emerging out of the crypto ecosystem. One of these is Exchange Traded Fund (ETF) products. A crypto ETF is a pool of crypto-related products traded as ETFs on traditional bourses.

Since the launch of the first crypto Exchange Traded Product (ETP) in 2015, there has been a mild explosion in the number of related funds launched to date. According to the ETFGI report, there has been a steady rise in the number of ETFs with 123 Crypto ETPs listed globally, along with 392 listings. 

The total asset base of these ETFs has topped $16.28 Billion from 24 providers, all of which are listed on 17 exchanges in 13 countries. With the growing popularity of digital currencies, these statistics are growing by the day, and that leaves us with a very salient question, how usable are crypto ETFs in today’s financial realities?

Сrypto ETFs in Today's Financial Realities

Mainly, people want to make more money to either upgrade or sustain their lifestyle. For most people, earning is not about risking or exploring unknown opportunities. When Satoshi Nakamoto invented Bitcoin back in 2009, the new product did not resonate with most people including corporate organizations, until of course, the valuation of the nascent asset skyrocketed.

With the rate of growth in BTC and other digital currencies, a lot of people realized that these new assets can be a very good way to generate profits. Even with the understandable delay, nowadays cryptocurrency is within the reach of most. 

To solve this dilemma and still grant people access to Bitcoin and crypto products in general, innovators created the ETF versions of the digital assets, riding on the fact that they largely behave like traditional financial instruments but with a higher volatility level. The emergence of crypto ETFs offers a certain advantage to retail investors as they can invest any amount they have to get a fractionalized share of the product.

With these fractionalized shares, they still tend to benefit from the price valuation under a regulated environment. Additionally, the risks associated with buying and holding Bitcoin directly are eliminated by shielding the investors from the dangers of losing private keys or facing a hackers’ attack.

The obvious benefits of these ETFs make a good case for asset managers to pitch the products to investors who are cautious about regulations and risks involved in the crypto ecosystem. As such, these ETF products are becoming increasingly popular amongst asset managers. 

Almost 75% of financial advisors surveyed say a spot crypto ETF would make them likely to invest clients' money in digital assets. A recent Nasdaq survey also shows that 72% of financial advisors would support a spot crypto ETF product in the US.

Crypto ETF Challenges and Future Milestones

In the financial ecosystem, there is no single product that has an advantage without its accompanying disadvantages and the same holds true for crypto ETFs.

These products are only tradable on regulated stock markets, and, as a result, Contract for Differences (CFD) brokers aren’t able to gain access to them. This implies that the liquidity for these products may be generally lower and shuts out a specialized class of investors.

These challenges are, however, not a hindrance to the future milestone projections for these innovative products. According to the majority of analysts, the launch of a spot Bitcoin exchange-traded product will catalyze the mainstream adoption of this asset, especially amongst corporate investors and this has further increased the clamor for the products in the US in recent times.

The US Securities and Exchange Commission (SEC), after years of saying ‘No’ to anything crypto-ETF-related, approved the Proshares Bitcoin Strategy ETF. It is a product that tracks the futures price of the digital asset. The massive embrace of this product at launch showed how much interest has been attached to ETFs and asset managers have renewed their hopes of getting the SEC’s nod shortly.

Profiling Crypto ETFs as the Future of the Nascent Asset Class

The ultimate goal for proponents of the cryptocurrency industry is that the assets mature as much as their traditional counterparts. Considering the goal of these crypto purveyors, there is no aorta of doubt that crypto ETFs will occupy a very pivotal position in channeling this vision for digital currencies

As a result, getting regulators to warm up to the idea of crypto ETFs is a very vital precursor to ushering in the future as many are currently perceiving it. Overall, a bitcoin ETF is poised to bring unique opportunities for investors, but may also present unique challenges on the investment management side.

The current economic terrain is also a major consideration that may make the potential of ETFs to be obscure. However, the underlying benefits cannot be ignored forever.