The $100tn reason why institutions will tap into Bitcoin ETFs

Retail traders have driven the spot Bitcoin exchange-traded fund boom, but market stakeholders bet institutional investors are coming.

Since launching in January, the 10 US spot Bitcoin ETFs have seen combined inflows of $11 billion, according to BitMEX Research.

“Over time, the share of flow coming from professional investors will increase as more platforms open up,” Matt Hougan, chief investment officer of Bitwise Asset Management, told DL News, referring to brokerage platforms and investment banks.

The comment highlights the shifting attitude on Wall Street towards cryptocurrencies.

In the past, financial advisers, sophisticated family offices, hedge funds, venture capital funds, and banks hesitated to tap into the world of digital assets — apart from launching occasional internal blockchain projects to boost efficiencies.

However, spot Bitcoin ETFs have enabled people to trade with the cryptocurrency in a reasonably safe and regulated way, which makes these trades increasingly more attractive for institutional investors.

“The $100 trillion capital market has just opened to Bitcoin, and most of that market is underexposed,” Ryan McMillin, chief investment officer at crypto fund manager Merkle Tree Capital, told DL News.

Bank of America’s Merrill Lynch and multinational financial services giant Wells Fargo have already started to offer select wealth management clients access to spot Bitcoin ETFs, according to media reports in February.

The likes of Morgan Stanley and UBS also considered tapping into the funds that give direct access to Bitcoin, Eric Balchunas, a senior ETF analyst at Bloomberg Intelligence, said in the same month.

He added that “pressure is mounting” on big US investment firms to tap into spot Bitcoin ETFs.

“Imagine being [a] Morgan adviser and your client wants IBIT and you have to be like ‘I don’t have access to it, my mummy (the platform gatekeeper) won’t allow it.’ That’s gotta be embarrassing,” he said.

IBIT is the ticker symbol for BlackRock’s spot Bitcoin ETF.

To be sure, this week has been brutal for spot Bitcoin ETFs.

Together, they suffered $742.2 million in total outflows on Monday, Tuesday, and Wednesday, according to BitMEX Research.

Analysts expect these outflows to flag soon.

“The outlook for spot BTC [ETF] inflows remains bright, as most larger platforms are still in the early stages of opening access for their clients,” David Lawant, head of research at crypto brokerage FalconX, told DL News.

Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.