A flurry of funds bets on the lure of bruised bitcoin

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A growing number of funds are betting on the long-term appeal of bitcoin and ether, a risky gamble in the depths of a crypto winter.

Unfazed by the price crash of the past 11 months, investment firms have unleashed a wave of exchange-traded funds, anticipating that elite cryptocurrencies and their underlying technology will eventually prevail.

Of more than 180 active exchange-traded crypto products (ETPs) and trust products globally, half have been launched since the bitcoin bear market began, Morgan Stanley said in a note released this month. The proliferation came even as the total value of assets in the market fell 70% to $24 billion during that time as crypto prices plummeted.

About 95% of those 180 funds focus on the two major coins, bitcoin and ether, Morgan Stanley said.

“Naturally, when the market is slower, prices are lower, people have lost money, the intensity of appetite decreases,” said Chen Arad, co-founder of the risk monitoring firm. Solidus Labs cryptographics. “But that’s not the case in the long term. Overall, I don’t think anyone gives up.

The appeal of ETPs is that they provide exposure to digital assets on a regulated exchange, so retail and institutional investors don’t have to worry about safely storing their crypto and avoiding hacks and hacks. robberies.

In terms of money, cryptocurrency investment products attracted around $453 million in net inflows this year, much of it in bitcoin and investment vehicles that include the biggest cryptocurrencies. , according to a report by digital asset manager Coinshares.

“There is more asset allocation to baskets that combine the top five or 10 crypto assets by market capitalization. This is a flight to quality compared to alternative assets in the crypto industry,” said Eliezer Ndinga, Research Director at 21shares.

Other major cryptocurrencies include solana, cardano, and ripple.

Tick ​​by tick

Most active crypto ETP products are registered outside the United States, however, with Switzerland, Canada, Australia, and Brazil leading with spot crypto offerings.

One reason is that U.S. regulators have denied multiple applications for bitcoin spot funds, which mirror the cryptocurrency’s price movements tick-by-tick, citing several reasons including the lack of oversight sharing agreements with regulated markets regarding the underlying assets of spot funds. .

Investors in futures-based funds often have to bear the additional cost of rolling futures contracts as the contracts approach settlement day, to maintain their position.

Bitcoin is down 17% over the past three months, while ProShares Bitcoin Strategy ETF, which tracks bitcoin futures, is down around 21%. The world’s largest bitcoin fund, Grayscale Bitcoin Trust, fell 34% at the same time.

ProShares Bitcoin Strategy ETF, saw its assets under management (AUM) shrink to just over $600 million at the end of September, according to data from Refinitiv Lipper. When it debuted a year ago, it grossed over $1 billion within days.

At Grayscale’s Bitcoin Trust, AUMs fell to $12.2 billion from over $30 billion at the end of 2021, according to company data.

Will Peck, head of digital assets at WisdomTree, whose bitcoin spot ETF was blocked by US watchdogs last week, said he was not surprised by the decision, but expressed hope that an agreement can be reached.

“I think we will eventually get there. But we will be in a waiting pattern for the foreseeable future.

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