Annual Review: BTC and ETH, ETF attract more investors to the crypto market

This year, BTCETF has become the focus of institutional capital, while ETH ETF has opened the door for other assets.

Article author: André Beganski

Article Source: decrypt

Article compiled by Ada, MetaEra

For the rapidly developing cryptocurrency industry, this seems like a long time ago, but the BTC and ETH spot ETFs launched in January and July respectively this year have brought revolutionary changes to the cryptocurrency industry.

Spot BTC ETFs have attracted a large amount of capital, allowing investors to invest in BTC without managing private keys. They also add legitimacy to the asset's position on Wall Street. Meanwhile, the ETH Spot ETF confirms the asset's status in the regulatory eye. Although it had a mediocre debut, it has gained momentum in recent weeks and may open the door for similar products to be launched in the United States for Solana and XRP.

When the BTC ETF started trading in January, the price of BTC was $46,000. Over a year later, the price of this asset has more than doubled. With the push from Donald Trump's entry into the White House, the BTC price even broke $108,000 in December.

According to CoinGlass data, there are currently 11 spot BTC ETFs, with a total assets under management (AUM) of $113 billion. Bloomberg ETF analyst Eric Balchunas told Decrypt in early December that by Christmas, these products may hold more BTC than the 1.1 million BTC mined by Bitcoin's mysterious creator Satoshi Nakamoto.

But the result, this symbolic milestone was broken just two days later.

"It's like adding a perfect ending to a fantastic start," Balchunas said at the time. "This is a miracle in financial history. This has never happened before, and it probably won't happen again in the future."

As for BTC spot ETFs, Balchunas added that these products bring 'excitement, anticipation, opportunity, and legitimacy' to the asset. He emphasized the importance of removing barriers to investing in BTC and allowing investors to access their familiar and trusted brokerage brands, which should not be underestimated.

This is clearly contrary to the popular belief after the 2022 FTX crash that 'if it's not your key, it's not your coin' - many cryptocurrency veterans believe that self-custody is the only reasonable way to own cryptocurrency. By 2024, the value proposition of holding BTC without managing keys will be too tempting for some investors to resist.

Nathan Geraci, the President of investment advisory firm The ETF Store, told Decrypt that he has always been very bullish on the prospects of BTC ETFs. At the beginning of the year, he predicted that these products would "break all ETF issuance records" before they started to become popular. However, he added, "the net inflows into these products have even exceeded my extremely optimistic expectations."

BlackRock officially joins

This year, BlackRock's iSharesBTC Trust ETF (IBIT) became the industry leader with more than $53.5 billion in assets under management (AUM). In comparison, Grayscale BTC Trust (GBTC) is the second-largest spot BTCET, with $20 billion in assets under management. BlackRock CEO Larry Fink has repeatedly emphasized the investment potential of BTC, which has further enhanced IBIT's image and status.

Fink, the head of the world's largest asset management company, who once had doubts about BTC, described BTC as a 'potential long-term store of value' at the beginning of the year to offset the impact of currency depreciation. However, Fink admitted a few months later that he has become a 'major believer' in BTC and sees this asset as a safe haven for those who are concerned about the future of the world.

As a store of value tool, BTC supporters often compare it to "digital gold." In BlackRock's product line, this analogy was concretely reflected in November, when the iShares BTC Trust ETF (IBIT) surpassed the assets under management (AUM) of the iShares Gold ETF (IAU), which was first launched in 2005.

As of press time, according to the ETF database, ranked by AUM, it ranks 32nd among all ETFs in the United States.

An analyst pointed out to Decrypt that BlackRock's entry into the cryptocurrency field in 2023 has alleviated the negative impression in the industry, while Geraci stated that the brilliant performance of BTC spot ETF is not a matter of course, but the result of many factors working together.

“In January of this year, I wasn't sure if anyone would expect the assets under management of spot BTC ETFs to exceed $100 billion by the end of the year,” he said, “In fact, many people were skeptical and believed that this category would never reach this level.”

A different market

According to the research of analysis company Kaiko, this year BTC spot ETF not only attracted a large amount of capital inflow but also improved the market structure of BTC.

Kaiko observed that in June of this year, the approval of BTC spot ETF increased the BTC trading volume on cryptocurrency exchanges and enhanced the market's ability to absorb large orders. At the same time, Kaiko's analysts pointed out that BTC trading activity is concentrated on weekdays, during Wall Street trading hours.

After being re-elected as the 'Cryptocurrency President', Trump's re-election has caused a historic surge in the price of BTC. For BlackRock's BTC products, IBIT acts as a connecting link, allowing investors to trade BTC in unprecedented ways.

On the second day after Trump was elected, November 6th, the BTC price broke $75,000, and IBIT's trading volume exceeded $1 billion in 20 minutes. By the end of the day, IBIT's trading volume had soared to $4.1 billion.

Balchunas wrote on X (formerly known as Twitter): "Today's trading volume exceeded the stock trading volume of Berkshire, Netflix, or Visa."

In an interview, Balchunas noted that spot BTC ETFs have set one historical record after another this year, from trading volume statistics to initial inflow speeds. Notably, BlackRock's BTC spot ETF reached $10 billion in AUM at the fastest rate in history. It was also the first ETF to reach $50 billion in AUM, more than five times faster than any other ETF in history.

When the US Securities and Exchange Commission (SEC) approved the listing and trading of spot BTC ETF in October, analysts told Decrypt that this development will make it easier, cheaper, and safer for institutional participants to invest in BTC.

"I think this is an important step in the normalization of crypto investment," Matt Hougan, chief investment officer at Bitwise, told Decrypt, "and we should be happy about it." ”

Grayscale's Gulf

When it comes to spot BTC ETF, it is impossible not to mention Grayscale. The company was once the largest asset management company in the cryptocurrency field. Last year, it won the lawsuit against the SEC, paving the way for the final approval of the product.

The SEC has been delaying the approval of BTC spot ETF applications for ten years due to concerns of market manipulation. However, in August last year, the United States Court of Appeals for the District of Columbia ruled that the SEC's repeated rejection of Grayscale's ETF application was illegal.

Despite billions of dollars flowing out of the Grayscale BTC Trust (GBTC) this year — $21 billion at the time of writing — Grayscale's then-CEO Michael Sonnenshein said the outflows were expected. In April, he noted that bankrupt crypto firms were "forced" to liquidate their GBTC holdings, while traders profited from the large discounts that came with the previous structure of GBTC.

Analysts also pointed out that the outflow of funds from GBTC is also related to its 1.5% expense ratio. This expense ratio makes the holding cost of GBTC higher than its competitors, whose expense ratio is as low as 0.19%. In response, Grayscale has launched a derivative ETF of GBTC with an expense ratio of 0.15%.

A similar situation occurred with Grayscale Ethereum Trust (ETHE), which, according to CoinGlass, saw outflows of more than $1 billion in the first three trading days after its official listing. While outflows have largely stopped, and Grayscale has launched a derivative ETF for ETHE, outflows dampened investor enthusiasm when the spot ETH Square ETF launched this summer.

Ether Square and others

Many people doubted whether the application for the spot ETH ETF would be approved under the leadership of SEC Chairman Gary Gensler, as he avoided questions about the regulatory status of ETH. However, to everyone's surprise, the SEC gave the green light to these products in May.

Consensys, an ETH mill software company, filed a lawsuit alleging that the SEC internally treats ETH as a security. This division will force companies looking to launch ETFs to take a different path, but the SEC's move effectively confirms ETH's status as a commodity.

However, the capital inflow of the ETH spot ETF is much lower than that of the BTC spot ETF. According to CoinGlass data, as of the writing of this article, since its launch in July, ETH spot ETF products from eight issuers have only attracted a capital inflow of 2.3 billion US dollars, while Grayscale Ethereum Trust (ETHE) has experienced a capital outflow of 3.6 billion US dollars.

Meanwhile, ETFs have not had the same price-boosting effect on ETH as they have on BTC. After reaching a peak of around $4,100 in early December, the cryptocurrency is currently trading at around $3,400. Unlike BTC, ETH has not yet broken its all-time high record in 2024, nor has it approached this level.

FlaconX research director David Lawant told Decrypt that it makes sense that investors are not rushing into ETH Square ETF in large numbers, because in the minds of mainstream investors, the story of ETH Square is relatively unknown compared to BTC.

Lawant also stated that the narrative of BTC as a store of value has been established. However, whether Ethereum is described as a technical game, a smart contract platform, or an application store for Web3 applications, the narrative around Ethereum is not as mature outside the crypto community.

“ETH Workshop is different from BTC,” Lawant said, “You can tell it from different perspectives, but no matter how you tell it, this is a different story.”

Currently, BTC and ETH are the only two digital assets in the U.S. that have spot ETFs. However, as the Trump government wants to set up a crypto-friendly SEC, asset managers have applied for ETFs that cover a growing number of other digital assets such as Solana, XRP, and Litecoin. Analysts told Decrypt that even Dogecoin ETFs don't seem that out of reach in this environment.

Whether or not the cryptocurrency's applications will be approved may have to wait for Gensler's successor, Paul Atkins, a former SEC commissioner and Trump's nominee to succeed him. At the same time, BTC and ETH spot ETFs will continue to trade, facing higher standards and expectations after their first successful year.