How Many Crypto ETFs Is Too Many?

Crypto-focused ETFs are getting crowded.

Charles Schwab’s pending entry to the digital asset ETF arena, announced this week, has industry participants parsing the number of traditional finance heavy hitters that have rolled out such products — perhaps dampening the prospects of future competition.

Schwab’s launch this week of its Crypto Thematic ETF (STCE) — which undercuts the expense ratios of similar funds by BlackRock, Fidelity and Invesco —  is likely to dissuade other would-be first-time issuers, according to Nate Geraci, president of The ETF Store.

“This segment of ETFs is already oversaturated,” Geraci told Blockworks. “With the large number of products swamping the market over the past year or so, along with mostly lukewarm investor interest, I actually think we could see more closures than launches here moving forward.”

But Valkyrie CEO Leah Wald told Blockworks in an email she foresees demand for many more crypto-related products, adding that Schwab launching this ETF is proof of institutions becoming increasingly comfortable with the asset class. Valkyrie currently offers a bitcoin futures ETF and a bitcoin mining ETF.

“We welcome their entry into the space and…believe that there is still plenty of room for growth in the diversity of offerings available to investors,” Wald said. “The capacity will be needed once regulatory clarity comes and the wave of capital it brings will need more than a handful of places to go.”

Slow asset growth amid rough performance 

Invesco’s Crypto Economy ETF (SATO) launched last October and has about $4 million in assets. Rene Reyna, the $1.4 trillion fund group’s head of thematic and specialty ETF strategy, said digital assets remain an emerging investment theme that requires investor education.

“We are committed to the digital asset space and will continue to monitor investor demand and product development opportunities,” Reyna told Blockworks in an email. 

Fidelity’s Crypto Industry and Digital Payments ETF (FDIG) and BlackRock’s iShares Blockchain and Tech ETF (IBLC), which both launched in April, have roughly $13 million and $6 million in assets under management, respectively.

Spokespeople for BlackRock and Fidelity declined to comment. 

Though most crypto ETFs have failed to gather assets in recent months in the throes of a lingering bear market, interest in these products may be due for a revival once the sell-off ends, said Neena Mishra, director of ETF research at Zacks Investment Research.

“ETF providers are also aware that they cannot ignore digital assets and blockchain technology,” Mishra told Blockworks.

Schwab’s ETF tracks its own index of crypto-related stocks. The index’s top five holdings, as of Tuesday, were sector stalwarts MicroStrategy, Marathon Digital, Riot Blockchain, Silvergate Capital and Coinbase.

Marathon Digital, Riot Blockchain and Coinbase are also in the top five holdings in IBLC and FDIG, while Marathon, Riot and Silvergate are among SATO’s top five.

Crypto-related stocks and ETFs have been hammered this year amid the sell-off of bitcoin and other digital assets. The largest — Amplify Investments’ Transformational Data Sharing ETF (BLOK) — is down roughly 44% year to date. 

SATO has lost even more, plummeting 59% so far in 2022, while IBLC and FDIG are down about 18% and 25%, respectively, over the same time period.

“If bitcoin rebounds strongly, we could see many new products,” Mishra said. “However, I’m not sure if many providers would follow Schwab by launching ultra-cheap crypto related ETFs, since investors pay more attention to performance in thematic ETF areas.”

Get the day’s top crypto news and insights delivered to your inbox every evening. Subscribe to Blockworks’ free newsletter now.