One year ago today, on January 11, 2024, the US Bitcoin spot ETFs had their first day of trading. 365 days later, it can be said that the investment products have exceeded all expectations in their first year - on many levels.
BlackRock's "iShares Bitcoin Trust (IBIT)" had the best ETF launch of all time. Furthermore, the first year of Bitcoin spot ETFs has more than eclipsed that of the first gold spot ETF.
Those who expected the approval of the investment products to have a huge impact should be proven right. This important step for the further adoption of the asset has certainly made a fundamental contribution to the fact that the Bitcoin price has roughly doubled since the first day of trading.
A rocky road to approval
The Bitcoin community waited several years for the US Securities and Exchange Commission (SEC) to approve the trading of Bitcoin spot ETFs. The first attempt was made more than eleven years ago by the Winklevoss twins. The early Bitcoin investors submitted an application for the "Winklevoss Bitcoin Trust" in the summer of 2013.
However, the SEC repeatedly stood in the way of the approval of Bitcoin spot ETFs, arguing that the Bitcoin market was not mature enough or that crypto exchanges did not have the necessary controls in place to prevent manipulation.
In Europe, however, investment products comparable to spot ETFs already existed a few years ago - namely ETNs and ETCs. Due to the UCITS Directive, ETFs in the EU are not allowed to track just one asset. Canada was also ahead of the USA. A Bitcoin spot ETF has been tradable there since February 2021.
The SEC approved Bitcoin futures ETFs in October 2021. However, these are not backed by "real" Bitcoin and are anything but suitable for long-term investments due to the structure of the derivatives.
A comparison of the performance of the Bitcoin futures ETF "ProShares Bitcoin ETF (BITO)" with the Bitcoin price makes this clear.
Until the summer of 2023, it seemed hopeless that the US authorities would approve Bitcoin spot ETFs. However, when the influential asset manager BlackRock submitted a corresponding application in June 2023, the chances increased dramatically and the topic of the potentially imminent approval dominated the news landscape surrounding Bitcoin.
In August 2023, the crypto medium Cointelegraph finally published a post on the 𝕏 platform stating that the Bitcoin ETF had been approved by BlackRock. At the latest when the Bitcoin price rose sharply in the short term in response to this announcement, which turned out to be false shortly afterwards, most market participants realized the potential impact of a real approval.
Bumpy approval
In addition to the false report from Cointelegraph, there was even a post from the SEC's 𝕏-account itself, according to which the Bitcoin spot ETFs have now received approval.
One day before the authority had to make a decision, on January 9, 2024, someone gained access to their account and published what at first glance appeared to be a genuine message.
A 25-year-old US citizen who was allegedly involved in the hack was arrested by the FBI a few months later.
On January 10, 2024, the time had finally come and the SEC granted official approval. However, this was also somewhat bumpy, as the official document was temporarily no longer available on the authority's website after publication. However, the official statement by Gary Gensler, who will leave the SEC as Chairman when Donald Trump is inaugurated, finally put an end to the uncertainties.
An important step
As the Bitcoin price had already developed positively in anticipation of the approval, some thought that this could become a "sell the news event", i.e. that the price would fall in reaction. Although there was a minor correction in the days that followed, the bottom line was that it clearly proved to be a price driver.
It was foreseeable in advance that the approval of spot ETFs could take Bitcoin a big step forward. On the one hand, because they provide institutional investors with vast amounts of capital with simple and secure access to the asset class. This step was essential for the mass adoption of Bitcoin.
On the other hand, the approval also means that a Bitcoin ban in the USA - which would not have been enforceable without it - is finally off the table. This is because influential and lobby-strong asset managers such as BlackRock or Fidelity are now benefiting from the success of Bitcoin through the management fees of the ETFs.
Investors who had shunned the asset class for fear of a ban or further political harassment finally had reason enough to reconsider their stance when the SEC gave the green light. And since major asset managers started backing Bitcoin, the "dirty image" of Bitcoin has also increasingly become a thing of the past.
A huge success
The Bitcoin spot ETFs ultimately became a huge success that exceeded all expectations. Bloomberg ETF experts Eric Balchunas and James Seyffart predicted inflows of USD 10 to 15 billion in the first year - which turned out to be more than USD 36 billion.
The US Bitcoin spot ETFs now manage more than 1,135,000 BTC with an equivalent value of around USD 107 billion. If one subtracts from this the almost 620,000 Bitcoin that were already in the Grayscale Bitcoin Trust, which was converted into a spot ETF before the start of trading, the investment products have received a total of 515,000 BTC.
If you compare the launch of the Bitcoin spot ETFs with that of the first gold spot ETF in 2004, it becomes clear how incredible these figures are. Even if inflation is taken into account in the comparison, the picture is crystal clear.
IBIT, the Bitcoin ETF from BlackRock, even had the best ETF launch of all time. No other ETF managed to manage so much capital in such a short period of time after its launch.
For example, the ETF only needed 211 days to reach the USD 40 billion mark in assets. The second-best ETF in this respect took 1,253 days.
One year after its launch, IBIT manages more than 50 billion US dollars in assets. This makes BlackRock's Bitcoin fund by far the best ETF in terms of assets under management after one year - even adjusted for inflation.
Three other Bitcoin spot ETFs, those from Fidelity, ARK Invest and 21 Shares as well as Bitwise, also made it into the top 20 alongside IBIT. And even the fifth-best Bitcoin spot ETF, VanEck's, is in the top 100.
BlackRock's Bitcoin ETF even managed to overtake the company's own gold ETF (IAU), which has been tradable since 2005.
However, IBIT has not yet managed to surpass the largest gold spot ETF, the SPDR Gold Trust (GLD), in terms of capital under management. GLD currently holds the equivalent of around 75 billion US dollars worth of gold.
The buyers of the ETFs
It is not easy to determine which entities are responsible for these strong inflows into Bitcoin spot ETFs. In addition to institutional investors, retail investors who do not trust crypto exchanges and do not want to store their coins themselves are also likely to have taken advantage.
However, the 13F filings, which investment managers with more than USD 100 million in securities under management submit to the SEC, revealed which larger institutions were represented on the buying side. In addition to registered investment advisors (RIAs), hedge funds and insurers, even the first public pension funds reported positions in Bitcoin spot ETFs.
For the first quarter of 2024, the State of Wisconsin's pension fund, SWIB, reported a Bitcoin ETF position of approximately USD 163 million. The Michigan pension fund followed suit in the second quarter and reported an exposure of USD 6.6 million. The pension funds held on to the Bitcoin spot ETFs, even though SWIB reduced the size of its position again over the course of the year.
Institutional adoption only just beginning?
Whether Bitcoin spot ETFs will continue to experience such strong demand will primarily depend on whether Bitcoin continues to establish itself as an investment. With the potential upcoming US Bitcoin reserve, it can be assumed that more major investors will take their first steps into the market.
Furthermore, despite ETF approval, not all US investors are able to invest in Bitcoin without further ado. The second largest asset manager in the world, Vanguard, does not yet offer the investment products on its own platform. Should hurdles such as these fall soon, further capital could flow into Bitcoin spot ETFs.
According to a recent study by Bitwise, 96 percent of investment advisors have received inquiries about cryptocurrencies from their clients. But only 35 percent of them are even able to buy cryptocurrencies for their clients' accounts - despite ETF approval.
Access remains a major barrier to adoption: Despite the emergence of spot Bitcoin and Ethereum ETFs in 2024, only 35% of advisors said they are able to buy crypto in client accounts.
From the Bitwise study
In a 𝕏-Space, Hunter Horsley, CEO of Bitwise, also explained that the large pools of capital usually always need some time to approach a new investment opportunity. Therefore, the coming year could be even better, according to Horsley.
Those firms take time. They run formal processes. And as a result of that, ETFs usually have a bigger second year than the first year. Because they start to develop a view in the first year, and it goes on their to-do list in the first year.
Hunter Horsley, CEO of Bitwise, in a 𝕏-Space
Furthermore, Bitcoin spot ETFs could also become more attractive due to a more open regulatory environment that is expected under Donald Trump's presidency. Just a few weeks ago, options trading based on IBIT and Co. was approved, which should attract further capital to the investment products - Blocktrainer.de reported.
With the forthcoming realignment of the SEC, it has also become more likely that the "in-kind method" will be permitted for ETFs and that the "in-cash method" will no longer have to be used. The in-kind method has tax advantages, saves costs and facilitates arbitrage trading, which improves price discovery.
So after a phenomenal first year for Bitcoin spot ETFs, the end of the road may be a long way off. The usual dynamics in the institutional world, further political legitimization of the asset and better regulatory frameworks for ETFs could ensure that the coming months will be even better for ETFs.
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