The Year in Crypto: Bitcoin and Ethereum ETFs Bring More Investors Into Crypto

This year marked a significant transformation in the cryptocurrency landscape with the introduction of spot ETFs for Bitcoin and Ethereum, launched in January and July respectively.

Spot Bitcoin ETFs have drawn in substantial investments, allowing investors to access BTC without needing to handle private keys. They have also added a layer of legitimacy to Bitcoin on Wall Street. Meanwhile, spot Ethereum ETFs have clarified the asset’s regulatory standing. Despite a slow start, these ETFs have gained traction in recent weeks and may pave the way for similar products for other cryptocurrencies like Solana and XRP in the U.S.

At the beginning of the year, when Bitcoin ETFs debuted, BTC was valued at $46,000. Fast forward to nearly a year later, the price has exceeded $108,000 in December, spurred by the political climate following Donald Trump’s presidential victory.

Currently, eleven spot Bitcoin ETFs collectively manage $113 billion in assets, as reported by CoinGlass. Bloomberg ETF analyst Eric Balchunas noted in early December that the amount of Bitcoin held by these ETFs could soon surpass the estimated 1.1 million coins mined by the legendary Satoshi Nakamoto, a prediction that became true just two days later.

Balchunas remarked, “That’d be a fitting cap on a storybook launch. This stuff is an anomaly in physics. There has never been a launch like this, and there will never be another one.”

Spot Bitcoin ETFs have injected excitement, anticipation, and credibility into the asset class. By enabling easy access to Bitcoin, they have connected investors with trusted brokerage brands, a contrast to the old belief that “Not your keys, not your coins” – a statement that gained popularity after the collapse of FTX in 2022. By 2024, many investors recognized the benefits of Bitcoin exposure without the need to manage private keys.

Nathan Geraci, the president of investment advisory firm The ETF Store, was optimistic about the potential of Bitcoin ETFs from the start. He foresaw that this category would break all previous ETF launch records. However, even he admitted that the influx of capital into these products surpassed his expectations.

BlackRock Enters the Market

BlackRock’s iShares Bitcoin Trust ETF (IBIT) has become a frontrunner in the industry, boasting over $53.5 billion in assets. It dwarfs Grayscale’s Bitcoin Trust (GBTC), the second-largest spot Bitcoin ETF with $20 billion in AUM. The growth of IBIT has been aided by BlackRock’s CEO, Larry Fink, who frequently mentioned Bitcoin as an attractive investment this year.

Once skeptical about Bitcoin, Fink described it earlier this year as a “potential long-term store of value” amid currency devaluation concerns. Over time, he evolved into a major proponent of Bitcoin, positioning it as an investment suitable for those wary about global uncertainties.

Comparisons between Bitcoin and “digital gold” are common among advocates. This association was solidified in November when IBIT’s AUM surpassed that of BlackRock’s iShares Gold ETF (IAU), which has been active since 2005.

At the moment, it ranks as the 32nd largest ETF in the U.S. According to ETF Database data.

While analysts noted that BlackRock’s entry into the crypto arena in 2023 has reduced stigma surrounding the industry, Geraci pointed out that the remarkable performance of spot Bitcoin ETFs was not predetermined. As of January, the possibility of the category accumulating over $100 billion by year-end seemed unimaginable to many.

A Changed Market Environment

The approval of spot Bitcoin ETFs led to extraordinary inflows this year, simultaneously improving Bitcoin’s market structure, according to research from Kaiko. In June, the firm found that the new ETFs had boosted Bitcoin trading volumes on exchanges and enhanced the market's ability to manage large orders. Furthermore, Bitcoin trading became more concentrated around weekdays, improving alignment with traditional Wall Street trading hours.

Following Trump’s campaign statement of being a “crypto president,” his reelection initiated a record-setting rally in Bitcoin prices. BlackRock’s Bitcoin product, IBIT, facilitated a groundbreaking way for investors to trade Bitcoin.

On November 6, as Bitcoin surged past $75,000 a day after Trump’s reelection, IBIT experienced a trading volume of $1 billion within just 20 minutes. By the day’s end, trading volume reached $4.1 billion.

For context, that volume eclipsed daily trading of major companies like Berkshire, Netflix, or Visa, as noted by Balchunas on X (formerly Twitter).

In his observations, Balchunas confirmed that spot Bitcoin ETFs set new records throughout the year, from trading volume to inflow rates. Notably, BlackRock’s spot Bitcoin ETF achieved $10 billion in assets faster than any ETF in history and was the first to surpass $50 billion in AUM—more than five times quicker than any previous ETF.

In October, the SEC's approval of options trading for spot Bitcoin ETFs was deemed a positive step, making it easier and safer for institutional investors to buy Bitcoin exposure.

“It’s another brick in the wall of normalization,” stated Matt Hougan, Chief Investment Officer of Bitwise, expressing satisfaction with the trend.

Grayscale's Position

Grayscale’s pivotal legal victory against the SEC last year set the stage for spot Bitcoin ETFs. Previously, the SEC had been hesitant to approve these products, citing market manipulation concerns. However, a court ruling last August determined the SEC's repeated denials of Grayscale's ETF proposals were illegal.

This year saw notable outflows from Grayscale’s GBTC, totaling around $21 billion, which Grayscale’s then-CEO Michael Sonnenshein acknowledged was anticipated. He pointed out that the bankruptcies of certain crypto companies forced liquidations of GBTC holdings.

High expenses associated with GBTC also contributed to these outflows since its expense ratio stands at 1.5%, making it pricier than rival products with significantly lower rates. In response, Grayscale produced a GBTC spinoff ETF featuring a reduced expense ratio of 0.15%.

A similar situation unfolded with the Grayscale Ethereum Trust (ETHE), which faced over $1 billion in outflows in its initial three days as a full-fledged ETF, as noted by CoinGlass. Although the outflow momentum has slowed, the introduction of a spinoff ETF for ETHE coincided with diminished enthusiasm surrounding the launch of spot Ethereum ETFs this summer.

Ethereum and Future Possibilities

SEC Chair Gary Gensler had previously dodged inquiries about Ethereum's regulatory standing, leading many to question the likelihood of spot Ethereum ETF approvals during his tenure. However, the SEC's surprising approval of these products in May changed this narrative.

A lawsuit filed by Consensys, an Ethereum software firm, highlighted the SEC’s internally perceived view of ETH as a security. The SEC’s decisions effectively validated Ethereum’s status as a commodity.

Nonetheless, spot Ethereum ETFs have drawn limited inflows compared to their Bitcoin counterparts. Following outflows of $3.6 billion from ETHE, the newly launched ETFs have managed to attract only $2.3 billion in inflows since their July introduction, as stated by CoinGlass.

Unlike Bitcoin, the introduction of Ethereum ETFs has not significantly impacted ETH's price. As of now, Ethereum trades around $3,400, well below its previous high of approximately $4,100 earlier in December. Ethereum's peak has yet to approach its all-time high set in 2024.

Investor interest in spot Ethereum ETFs has been lukewarm, largely because Ethereum’s narrative is not as widely understood as Bitcoin's. FlaconX’s Head of Research, David Lawant, emphasized, “Ethereum presents a distinct narrative when compared to Bitcoin. There are different stories to tell, yet all convey that Ethereum is a different entity entirely.”

Currently, Bitcoin and Ethereum are the only digital assets with spot ETFs in the U.S., but more asset managers have begun applying for ETFs covering Solana, XRP, and Litecoin. Even Dogecoin ETFs are being considered, indicating a growing optimism within the industry.

The fate of these cryptocurrency ETF applications will largely rest on the decisions of Gensler's potential successor, Paul Atkins, a former SEC commissioner who has been nominated for the role. Meanwhile, spot Bitcoin and Ethereum ETFs will continue trading as they strive to maintain their success.

Bitcoin, Ethereum, ETFs