Billions flood into bitcoin ETFs amid price surge – just not Grayscale’s

Bryan Armour of Morningstar Research Services and Noah Damsky of Marina Wealth Advisors

Even as the stock market and gold are at high points, spot bitcoin ETFs have been raking it in, with one of them becoming the fastest ever to reach $10 billion.

Investor have poured at least $10 billion into spot-price bitcoin ETFs since the SEC approved the products in January, corresponding with a rapid increase in the crypto asset’s price to an all-time high.

But not all of the ETFs that were first to market have benefited from the frenzied demand that has pushed the cryptocurrency’s price above $69,000. The biggest such product, the $27.5 billion Grayscale Bitcoin Trust, ETF has been like a sieve – bleeding nearly $10 billion. That product had a massive head start on its competitors in terms of assets, given that Grayscale converted its bitcoin trust to an ETF. But the ETF sponsor also charges the highest fees among the competitors, at 1.5 percent.

“I don’t know if they were anticipating a lot of capital gains in their investor base – so perhaps they expected folks to be unable to move out,” said Bryan Armour, director of passive strategies research for North America at Morningstar Research Services. “But they have been hemorrhaging cash.”

As of March 6, Grayscale’s ETF had seen $9.9 billion in net redemptions since its conversion, Armour said, citing data from Morningstar Direct. Just over the past five days, more than $2 billion has poured out, he said.

BlackRock and Fidelity have benefited. Their products, the iShares Bitcoin Trust Registered ETF and Fidelity Wise Origin Bitcoin Fund, started from scratch and have reached $12.6 billion and $7.8 billion in assets, respectively, as of Friday, according to data from VettaFi. The next biggest competitor, the Ark 21Shares Bitcoin ETF, represented $2.5 billion, followed by the Bitwise Bitcoin ETF Trust, at $1.8 billion.

The iShares ETF, the obvious winner in sales, became the ETF that reached the $10 billion mark most quickly, doing so in just a couple of months. The prior winner of that title, Invesco’s QQQ ETF, took more than a year to reach that amount of assets, and the next-fastest ETFs did so over two years, Armour said.

Aside from Grayscale’s ETF, about $19 billion in total has flowed into spot bitcoin ETFs since their arrival, with total assets across all products representing $54 billion, he said.

“Most of the ETFs are very tightly priced, with the exception of Grayscale,” he said. “I would look at trends as Grayscale versus the rest.”

The iShares ETF, for example, charges 0.25 percent, though BlackRock has waived nearly half of that fee on the first $5 billion of assets for 12 months.

Much more aggressively, Fidelity has waived the entire 0.25 percent fee on its ETF for a year.

STOCKS AND BITCOIN AND GOLD, OH MY

One financial advisor said that despite the widespread interest, the bitcoin bug doesn’t appear to have bitten clients. Notably, it’s not just bitcoin that’s sitting near a high – the stock market and gold have also been at records.

“Typically, I’d expect there to be more buzz about bitcoin with it soaring, but there haven’t been many inquiries,” Noah Damsky, principal of Marina Wealth Advisors, said in an email. “However, the S&P just hit an all-time high, so I think while folks are making money in stocks, they might be less concerned with making more in bitcoin. If stocks retreat and bitcoin continues to run higher, I’d expect the conversation to change.”

It’s unusual to see gold prices at a record at the same time as the stock market hits highs, Armour said, given that investors often turn to the precious metal when stocks are down.

And even as investors have rushed to buy spot bitcoin ETF shares amid high prices, that has not been the case for gold ETFs, which have seen outflows recently. However, the gold market is much more varied, with many ways of accessing gold, so a direct comparison can’t be made, Armour said.

And stock market highs don’t necessarily correlate with inflows into equity index funds, he noted.

“Performance chasing is still very pervasive in markets, [but] it’s not everywhere,” Armour said. “The more stable, long-term assets do not respond as much to performance.”

The rise in bitcoin prices, and flows into spot bitcoin ETFs, could continue. But he cautions buyers about the obvious volatility of the digital asset, noting that it’s seen prices drop by more than 40 percent four times over the past five years.

“Make sure you’re not going all in on bitcoin,” Armour said.