$4.6 Billion & Counting: Investors Pile In On First Day of Bitcoin ETF Trading

A new era dawned for cryptocurrency on Thursday as the first U.S. spot bitcoin exchange-traded funds (ETFs) began public trading after years of rejection by regulators.

Eleven ETFs tracking the price of bitcoin launched on major exchanges, sparking intense competition between issuers and sending bitcoin to its highest price in two years.

Keypoints

• U.S. spot bitcoin ETFs launched on Thursday, seeing $4.6 billion in trading volume on the first day.
• Low fees sparked a race for market share among issuers, with some slashing fees to as low as 0.2%.
• Bitcoin hit a two-year high price on Thursday following the ETF launches.
• Traders were closely monitoring bid-ask spreads on the new ETFs as a measure of liquidity and desirability.
• While some firms like Vanguard opted out, major players like BlackRock, Grayscale, and Fidelity saw strong initial demand.

In total, the new slate of ETFs saw over $4.6 billion worth of trading volume on day one, according to data from the London Stock Exchange Group. The strong initial demand signals growing mainstream acceptance of cryptocurrency as an investable asset class.

Leading the charge were finance giants BlackRock, Grayscale, and Fidelity, whose ETFs attracted over $1 billion each in trades. In contrast, major low-cost index fund provider Vanguard opted out of offering spot bitcoin ETFs to clients, citing continued concerns over the volatility and speculative nature of crypto markets.

Here’s the #Bitcoin ETF Cointucky Derby data via trading volume on day 1 (more volume will continue for a little while).

Total Volume was over $4.6 Billion with $GBTC about half of it. BlackRock & Fidelity went 1 & 2 absent GBTC. pic.twitter.com/t70MzyQfZW

— James Seyffart (@JSeyff) January 11, 2024

The long-awaited regulatory approval came late Wednesday night from the Securities and Exchange Commission (SEC), ending years of rejection on concerns over investor protection and crypto asset volatility. While approving the current set of filings, SEC Chair Gary Gensler noted crypto remains a “highly speculative” investment.

The launch set off a pricing war between ETF issuers, with management fees slashed as low as 0.2% in order to attract investor capital. Issuers are also employing gimmicks like temporary fee waivers and covered call strategies to stand out in the crowded field. The effects of this race-to-the-bottom in ETF pricing remain to be seen.

Traders also closely monitored the new funds’ bid-ask spreads – the difference between the prices buyers are willing to purchase shares at and the prices sellers are willing to offer them for. Narrow spreads generally signal an ETF has sufficient liquidity and volume for the market to function efficiently.

Beyond the ETF frenzy, the launches helped push up crypto prices more broadly. Bitcoin rose to its highest level since December 2021, nearing $47,000 at intraday peak. Ether, the second largest cryptocurrency, also rallied to $2,600.

Reactions among legacy financial institutions were mixed. Some, like Goldman Sachs, continue to shun crypto as having no inherent value to portfolio construction. Others however, like Blockchain.com CEO Peter Smith, noted the diverse group of entities launching products, from crypto native issuers like Grayscale to Wall Street titans like BlackRock.

In all, while doubts linger in corners of the financial community, the successful first outing of spot bitcoin ETFs marks a coming of age for crypto as an investable asset class in the public markets. This could pave the way for further adoption of digital assets into conventional portfolios.