For ETF investors, the onslaught of crypto ETF launches has created some short-sighted excitement. The spot bitcoin ETF launch, in particular, contributed to some buzz around rising bitcoin prices that seemed to cloud the long-term growth drivers of the industry. But post-election, long-term views on cryptocurrencies have been very bullish, driving bitcoin prices up ~60% in the fourth quarter to a milestone $100,000. Now investors have returned their interest to crypto and bitcoin ETFs.
Recently, I attended the North American Blockchain Summit in Dallas, Texas, a digital asset policy conference (conveniently located ten minutes away from me). Speakers included some of crypto’s greatest minds, such as executives from Coinbase Global (COIN), Canaan (CAN), Riot Platforms (RIOT), Core Scientific (CORZ), Hive Digital Technologies (HIVE), and MARA Holdings (MARA). Speakers also included some pro-crypto politicians like Senator Paul Toomey, Paul Ryan (former speaker of the house), Stephen Harper (former Canadian Prime Minister), Mike Pompeo, Congressman French Hill, and House Majority Whip Tom Emmer. Unsurprisingly, ETFs were only mentioned a couple of times throughout the conference. Instead, conversation revolved around long-term growth drivers like the political landscape, artificial intelligence, and tokenization. Here are some of the biggest tailwinds from the conference.
Political Landscape Driving Tailwinds
With the upcoming Donald Trump presidency, there have been several proposed changes supporting the growth of the industry. One potential change has been the start of a “crypto czar” position at the White House. But Trump has also been filling the White House with pro-crypto connections. Among others, he has nominated Cantor Fitzgerald CEO Howard Lutnick to the Department of Commerce and Scott Bessent (a very crypto friendly hedge fund manager) as Treasury secretary. On top of this, Gary Gensler has stepped down from his post (as expected, but on a slightly earlier timeline). This was met with applause at least three times from the audience. Other items discussed include a potential U.S. strategic reserve, which could help grow U.S. assets and hedge debt. According to Arkham, the U.S. government already holds almost 200 units of seized Bitcoin, currently valued at around $19 billion.
These tailwinds have created a different outlook for crypto. It drives the price from not just excitement but from long-term anticipation. YTD, spot bitcoin ETFs have about $32 billion in net inflows. Excluding the Grayscale Bitcoin Trust (GBTC), which has had large outflows since its conversion, the group has seen $52 billion of net inflows. Looking at this another way, the largest spot Bitcoin ETF, the iShares Bitcoin Trust (IBIT) itself gathered almost $33 billion in net inflows over the year. Quarter-to-date, IBIT saw $11 billion in net inflows. That includes the weeks leading up to the election, the election itself, and some time post-election.
With a more pro-crypto landscape, issuers have also become more optimistic and have ramped up filings. I expect the ecosystem to build out more in 2025 — including potential approvals of other spot crypto ETFs like Solana and XRP. So far, VanEck, 21Shares, Bitwise, and Canary Capital have filed for Solana ETFs. The latter three, along with WisdomTree, have filed for an XRP ETF. Canary Capital also has a filing for a Litecoin ETF. I also expect more active strategies (several launched in the second half of 2024), including leveraged and options-based ETFs. See my previous note for a summary of the current crypto ETF landscape.
The Large Intersection Between AI and Crypto Mining
If you read my recent takeaways note here, it is obvious that many conversations have revolved around artificial intelligence and energy usage. One of the biggest bottlenecks is data center availability — and that’s where the crypto miners come in. Crypto miners, who had previously been struggling with falling bitcoin prices, have started diversifying by using their existing mining facilities to also house data center equipment. This is a win-win for both industries. Crypto miners get a diversified revenue stream, and tech companies can take advantage of their existing structures. Mining companies including Core Scientific, Hive Digital, and Hut 8 Corp (HUT) have entered into agreements for AI hosting.
Before spot bitcoin, crypto miners took the biggest hit when bitcoin fell. Like any other commodity miner, their stock price was leveraged to the price of the underlying commodity. After the FTX meltdown, the CoinShares Valkyrie Bitcoin Miners ETF (WGMI) fell 84% in 2022. When prices started recovering the next year, the ETF was up 303%. Investors still weren’t flocking to the product. Generally, they seemed to be interested in spot bitcoin ETFs over crypto equity ETFs. These ETFs may start coming back in style as mining companies are seeing potential growth opportunities. WGMI currently has $238 million in assets with $96 million in net inflows YTD.
Recent ETF launches have mostly been focused on leveraged bitcoin and bitcoin options income strategies. However, State Street and Galaxy launched three digital asset ETFs holding mostly crypto equities (including mining companies), proving that innovation within crypto equity ETFs isn’t dead yet. These ETFs include the SPDR Galaxy Hedged Digital Asset Ecosystem ETF (HECO), the SPDR Galaxy Digital Asset Ecosystem (DECO), and the SPDR Galaxy Transformative Tech Accelerators ETF (TEKX).
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