Last week marked a landmark for the cryptocurrency industry, as the very first ETFs backed by Bitcoin Futures were launched on the New York Stock Exchange. The US’ first Bitcoin ETF by ProShares hit more than $1 billion in assets under management in around 48 hours of being listed. This made it the most successful ETF launch of all time. With more ETFs lined up to be released and even more waiting for approval, understanding and retaining investor interest is the top priority for these funds.
ProShares’ success has laid bare the enormous demand there is for institutional cryptocurrency products, but where is it stemming from? According to Bitwise CIO Matt Hougan, financial advisors are the key demography that is investing in these ETFs, as they manage the money for the wealthiest individuals in the nation and control most of the nation’s private capital. Hougan remarked in a recent interview that investing in funds is “easy” for the managers, as they operate in the same process as traditional stocks and ETFs.
Drawing an analogy with his company’s own Bitcoin fund, he stated,
“Bitwise has a private fund. It’s available to accredited investors. It’s a great product. It costs 95 basis points. The assets are stored at fidelity. You can buy and sell it at NAB. It basically does exactly what you would expect. By almost any academic perspective, it’s better than a futures-based ETF.”
However, allocating or relocating funds for a hundred different clients would bury the asset manager in tedious paperwork, making an ETF a much suitable option for them, noted Hougan, adding,
“Even though you, as an individual may be better served buying it directly, these people are busy. Bitcoin’s maybe 2% of their portfolio. They’re just never gonna do it, but they will do it if there’s an ETF. So ease of use is like the most boring thing you can say about a product, but it’s actually really important, particularly for these financial advisors.”
Bitwise, which is the world’s largest crypto index fund manager, had filed for a physically-backed Bitcoin ETF last month, following the application for a Bitcoin futures-backed ETF last month. While both are waiting for approval by the SEC, Hougan believes that the ProShares ETF “will probably
be the biggest for a long time.” He explained,
“The first to market is the kingmaker. First to market ETFs get most of the assets. And while I’d love to say Bitwise will sweep in and win all the assets on futures-based ETFs, I don’t think that’s true.”
This argument has been made by several ETF experts recently, especially as those ETFs released later have not fared too well comparatively. Hougan also added this will lead to people competing on price, which is already the case as recent ETF filings reveal a significant management fee reduction from what is being charged by Proshares’ BITO.
In this scenario, Bitwise aims to focus on relationship management rather than pricing, commented to Hougan. He said,
“We compete on relationships. So when you buy a product from Bitwise, you have a relationship with our research team. We’re selling a research-based relationship behind what is gonna be a fairly commoditized product.”