Bitcoin ETF Off to a Strong Start, But Wall Street Not All Cheers

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The SEC's approval of a physical Bitcoin ETF could pave the way for more variants of Bitcoin funds, including leveraged and inverse investment funds.

Original Article Title: "Bitcoin ETF Off to a Strong Start, But Wall Street Isn't All Cheers"

Original Source: The Wall Street Journal

BlackRock's fund continued to shine on the first day of Bitcoin ETF trading.

The new Bitcoin ETF had a strong debut, but Vanguard declined to join the frenzy.

The asset management giant said on Thursday that it would not offer the new spot Bitcoin ETF on its brokerage platform. This move underscores Vanguard's concerns about whether Bitcoin is suitable for many retail investors.

Vanguard said in a statement, "These types of products do not align with our focus, which is on assets such as stocks, bonds, and cash, as Vanguard sees the latter as the foundation for a well-balanced long-term investment portfolio."

The U.S. Securities and Exchange Commission (SEC) approved the first batch of U.S. Bitcoin ETFs on Wednesday, hailed by the cryptocurrency community as a game-changing move that allows mainstream investors to buy and sell Bitcoin as easily as stocks and mutual funds.

Investor response was enthusiastic. According to Dow Jones Market Data, on Thursday, trading volume for 10 spot Bitcoin ETFs exceeded $4.6 billion. BlackRock's Bitcoin ETF had one of the highest first-day trading volumes among all new ETFs. The price of Bitcoin rose slightly by 0.5%, surpassing $46,000.

Vanguard is not the only platform limiting investor access to such funds. Retail investors on social media platform X have indicated that they are also unable to purchase these products on the trading platforms of Citigroup, Bank of America, Edward Jones, and UBS.

Many of these products have not been able to launch smoothly due to compliance departments of brokerage firms not yet approving Bitcoin ETFs. A Citigroup representative said the bank is evaluating these products for retail investors. Other brokerages either declined to comment or did not respond to requests for comments.

Vanguard has always restricted investors from purchasing products they deemed unsafe. For example, in 2019, Vanguard terminated the purchase of leveraged and inverse ETFs citing risks.

Some cryptocurrency enthusiasts have expressed outrage at Vanguard's move. Neil Jacobs, Brand Director at Bitcoin investment company Swan Bitcoin, said he was planning to move some of his personal retirement account assets to a Bitcoin ETF, only to find Vanguard had restricted it. He said he now plans to switch to a different provider and not use Vanguard anymore.

“I want to be treated like an adult,” Jacobs said. “I want respect regardless of whose client I am. But here I don’t feel respected.”

According to Morningstar Direct data, the record for the highest first-day trading volume for an ETF has been held by another BlackRock fund — the U.S. Carbon Transition Readiness ETF launched in April 2021, with a first-day trading volume of $1.16 billion. The second spot goes to ProShares' Bitcoin Futures Fund launched in October 2021, with a first-day trading volume of $1.01 billion.

BlackRock's iShares Bitcoin Trust saw just over $1 billion in trades on Thursday.

Analysts say the initial days and weeks of trading will be crucial in determining the fate of these funds. Institutional investors, eager to participate, may favor funds with the highest trading volume and best liquidity. Most funds charge investors relatively low fees and need to grow to assets of several billion dollars to generate significant profits.

“The first shot for Bitcoin ETFs was fired loud and clear, but this is just the beginning,” said Charles Ragauss, Trading Head at Tidal Financial Group. “Due diligence and platform approvals will take time, and then investors will be able to buy these ETF products from different institutions.”

Among other Bitcoin funds, Fidelity Investments' Wise Origin Bitcoin Fund traded $713 million, followed by funds operated by Cathie Wood's ARK Investment Management and 21Shares, with trading volumes of $289 million. (The fund with the highest volume is Grayscale's Bitcoin Trust Fund, which has transformed into a spot Bitcoin ETF, with a total trading volume of $2.3 billion.)

Some other funds have shown weaker performance. The Valkyrie Bitcoin Fund traded about $9 million, while the WisdomTree Bitcoin Fund traded less than $7 million.

Signs indicate that the WisdomTree ETF lacks appeal to investors and professional traders, reflected in a large bid-ask spread. On Thursday, the spread exceeded 75 cents, while larger funds typically have spreads of only a few cents. WisdomTree stated that they are focusing on "nurturing long-term organic demand."

Among the investors who purchased the Bitcoin spot ETF on the first day was 70-year-old retiree Keith Rauch from Wisconsin. He has a brokerage account with Fidelity Investments, and shortly after the spot Bitcoin ETF began trading, he started making small investments of $10 per week in Fidelity's Bitcoin fund. He mentioned that the low fees attracted him, with fees at zero for the first six months and then 0.25%, but he still felt a bit uneasy.

"I just want to give it a try and see if I can handle it," he said. "After six months, I might withdraw, or I might invest more."

The 11th fund did not start trading as scheduled. The SEC has not yet approved the registration application of the Brazilian cryptocurrency investment firm Hashdex.

Unlike other companies with upcoming ETF launches, Hashdex aims to convert its existing futures Bitcoin fund into a spot Bitcoin fund. So far, the fund continues to trade as a futures Bitcoin ETF under the code DEFI. Hashdex stated in a release that the fund will later convert to directly hold Bitcoin.

However, this setback did not stop Hashdex from celebrating. On Wednesday night, the investment firm held an event at the New York Bitcoin-themed bar PubKey to celebrate the approval of its Bitcoin ETF.

The SEC's approval of a spot Bitcoin ETF could open the door to more variations of Bitcoin funds, including leveraged and inverse investment funds.

Grayscale submitted a prospectus on Thursday for an actively managed "optionally collateralized call option" Bitcoin ETF, generating income through trading Bitcoin options while giving investors exposure to Bitcoin price movements. This fund has not yet been approved.