Wall Street’s ETF Engine Revs Up After $17 Billion Bitcoin Haul

(Bloomberg) — Less than 48 hours after U.S. regulators approved Ether ETFs tracking the world’s second-largest cryptocurrency, asset managers are rushing to produce new products for the new digital asset class.

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ProShares filed paperwork on Wednesday for six funds that would be long or short Bitcoin or Ether. Hashdex recently said it was considering putting both tokens in a single investment box. Meanwhile, issuer VanEck said last month it hoped to launch an ETF based on Solana, the fifth-largest cryptocurrency, even as analysts said the road to such a launch would be bumpy.

As a result, the ETF product machine is aiming to churn out a range of new and ever-more bizarre crypto instruments. And for good reason: The U.S. Securities and Exchange Commission may not be thrilled about this development, but bitcoin funds are now among the largest ETFs to debut this year, raising more cash than even some big-name tech funds.

“ETFs have always been known to push the envelope, so I think issuers will be creative with their crypto filings,” said Roxanna Islam, head of sector and industry research at VettaFi. “That doesn’t necessarily mean there will be demand for these particular ETFs. But as more investors become interested in traditional spot crypto ETFs, I expect filings for crypto strategies to follow suit and try to catch that wave of demand.”

New fund launches have become increasingly frequent in the booming $9.4 trillion U.S. ETF space. So far this year, more than 330 new funds have started trading, compared with about 500 last year. Still, in a saturated market, funds can close as quickly as they appear — more than 100 ETFs have closed in 2024, a similar amount to what was seen at this point last year, according to data compiled by Bloomberg.

Successful exits for Bitcoin and Ether ETFs this year have surprised many analysts, with flows into the funds coming in stronger than expected. Eight of the nine Ether ETFs have seen inflows since their launches earlier this week, with products from both BlackRock and Bitwise raising more than $200 million each. Yet all of them — and the underlying asset itself, Ether — fell on Thursday in what some market watchers predicted could be a “sell the news” type of event.

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Meanwhile, Bitcoin funds have generated a net income of $17.5 billion since the beginning of the year.

The launch of these exchange-traded funds, which have been in the works for years, signals a softening regulatory climate for the digital asset sector in the U.S., which is likely to encourage asset managers to be more creative.

“I’m sure issuers will push the envelope,” said Athanasios Psarofagis of Bloomberg Intelligence. “They’re always looking for creative ways to make money.”

Inverse and leveraged ETFs, which use derivatives to boost returns or pay the opposite of the returns of certain stocks or indices, have gained popularity over the past year. Retail investors in particular have embraced the chance to double or triple their gains despite the risk of compounding their losses.

Leveraged ETFs have collected about $9 billion in inflows so far in 2024 and are on track to surpass last year’s $10.2 billion, according to data compiled by Bloomberg Intelligence. A leveraged bitcoin ETF trading under the symbol BITX has gained about $2 billion so far this year amid gains of 50%.

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