Last Friday, Bloomberg Senior ETF analyst Eric Balchunas joined VettaFi vice chairman Tom Lydon and head of research Todd Rosenbluth for the VettaFi Cryptocurrency Symposium to talk about the launch of the first spot bitcoin ETFs the day before.
Nine of the funds were brand new and currently have more than $2 billion in combined assets under management. Meanwhile, the Grayscale Bitcoin Trust (GBTC) converted into an ETF wrapper after existing in its original form for about a decade. It brought roughly $25 billion in assets under management into its new structure.
“GBTC, in my opinion, is an outlier because it came over as a fully grown adult. I really am more interested in the newborns, because as you know, the ETF industry is very hard,” Bachunas said.
“Launching an ETF is like sending a newborn into the Amazon jungle. It is really tough out there. The fact that these nine newborns were able to garner up to $2 billion in volume is unbelievable,” he added, noting that many of the nine new products had more than $100 million in volume during their first day of trading.
Balchunas highlighted fees and liquidity as being crucial factors in the success of the new funds, though he said he usually sees fee and brand are the two most important factors. Except for GBTC, which charges an expense ratio of 1.5%, Balchunas noted that the first batch of spot bitcoin ETFs are “all pretty low cost,” though he pointed out that GBTC brings significant liquidity to the table.
Bogle & Bitcoin
Balchunas is the author of a book on deceased Vanguard founder John Bogle, and Lydon asked him about what the financial industry titan’s reaction would be to the launch of such a fund. Bogle was a critic of Bitcoin when he was alive.
“The reason [Bogle] didn’t like Bitcoin wasn’t personal. He [didn’t] like commodities. He [was] a guy who [liked] stocks because they have an internal rate of return. You’re buying earnings growth and cash flows. That’s really like your money works for you. Bonds have a coupon. Bitcoin is a commodity — it’s only worth what someone else will pay. Not that that’s bad, but it’s like gold that way. And he wasn’t into any of that,” Balchunas said.
However, he does believe that Vanguard will likely revise its “anti-Bitcoin” stance because it has expanded into providing advisory services.
“They’re not just a fund company. They’re an advisor now. And they’ve got $350 billion in advisor assets. These people who are coming them to manage their whole portfolio… may not just want the 60/40 [portfolio],” Balchunas said. He speculated that over time the asset manager could enter into a partnership or launch its own bitcoin fund to avoid losing future business.
Spot Bitcoin ETFs’ Appeal
The SEC’s clear reticence to approve a spot bitcoin ETF may add to the new funds’ appeal, Balchnas implied. He compared the warnings of advisors to the content warnings that appeared on rap albums in the 1980s. A standard 60/40 portfolio has provided strong long-term returns historically, but he likened it to the (non) excitement of watching a seed grow into a tree.
Ironically, firms like Vanguard that allow investors to access stocks and bonds at low costs have paved the way for cryptocurrencies to become a part of portfolios. Those decreased costs give investors more room to explore in their portfolios, Balchunas indicated. He sees 1% allocations as the norm in the future rather than advisors allocating large amounts of client assets to cryptocurrency exposures.
ETFs tied to Ethereum, the second-largest cryptocurrency in the world, are likely to follow, according to Balchunas. However, he doesn’t foresee funds based on smaller coins being approved anytime soon. Instead, he believes the U.S. market will see a flurry of variations on bitcoin exposures such as covered call and leveraged funds or bitcoin paired with other asset classes.
“I would look for this sort of sequelizing of Bitcoin for a while first before we go down to these other coins,” Balchunas said.
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