European exchange traded products (ETPs) associated with cryptocurrencies have experienced a notable surge in investor interest, largely attributed to BlackRock’s application to introduce a Bitcoin fund in the United States.
This trend echoes a broader global phenomenon of increased investments in crypto ETPs. Notably, European ETPs with crypto-focused titles exhibited net inflows of €150 million in June, marking their most robust performance since March 2022, indicated by data from financial information provider, Morningstar.
The renewed inflows into European crypto ETPs came on the heels of a preceding €100 million in outflows witnessed in May. The momentum persisted into July, with an additional €60 million pouring into these ETPs. CoinShares, a digital asset management firm, reported a comparable trend on a global scale, recording total inflows amounting to $610 million (equivalent to €560 million) in both June and July.
The catalyst behind this notable shift in investment patterns was BlackRock’s application to launch a spot Bitcoin exchange traded fund (ETF) in the US during June. This strategic move by BlackRock not only spurred similar applications from major players like Fidelity, Invesco, and WisdomTree but also significantly impacted the sentiment around Bitcoin-related ETPs. Unlike ETFs that track the price of Bitcoin futures contracts, a spot ETF directly mirrors the price of Bitcoin itself. Notably, several Bitcoin futures ETFs have already gained regulatory approval in the US.
Hector McNeil, the co-founder and co-CEO of HANetf, pointed out that BlackRock’s application had a “very positive” effect on both Bitcoin ETP flows and the actual price of Bitcoin. This positivity largely stems from the anticipation of heightened demand upon the launch of BlackRock’s ETF. McNeil emphasised that this development was crucial in mainstreaming the asset class, as BlackRock’s decision indicated a shift in the stance of the world’s largest asset manager towards cryptocurrencies. He anticipated that other asset managers and various investor types would likely follow suit.
Martin Bednall, CEO of Jacobi Asset Management, highlighted the unprecedented levels of anticipation surrounding regulatory approval for ETFs. Although the status of BlackRock’s ETF application’s approval by the US Securities and Exchange Commission (SEC) remains speculative, many industry experts find it puzzling that Bitcoin futures ETFs received approval while a spot ETF is still under consideration.
On a global scale, cryptocurrency ETPs encountered a consecutive nine-week period of net outflows prior to BlackRock’s ETF application announcement. Cumulatively, these outflows amounted to $400 million, based on data from CoinShares. However, the tide shifted following the news of BlackRock’s intentions, leading to an influx of new investments into these products. James Butterfill, head of research at CoinShares, highlighted that the earlier outflows were primarily driven by negative sentiment arising from regulatory uncertainties in the US. The endorsement implicit in BlackRock’s desire to launch a Bitcoin ETF, according to Butterfill, boosted confidence and signalled broader acceptance of Bitcoin.
Despite the optimism surrounding the surge in crypto ETP investments, Manan Agarwal, a quantitative analyst at Morningstar, cautioned against assuming the sustainability of this trend. He pointed out that similar products to BlackRock’s ETF had been introduced in other countries, such as Canada, Brazil, and Dubai, only to witness subsequent periods of lacklustre growth and poor performance. Agarwal also drew attention to the ratio of open interest in Bitcoin perpetual futures contracts to Bitcoin’s market capitalisation, highlighting that this ratio is presently well below the highs observed in the previous year. This discrepancy, Agarwal explained, suggests that despite the rise in Bitcoin’s price, the inflow of money into the market has been relatively sluggish.
The evolving landscape of cryptocurrency ETFs continues to captivate both investors and analysts, leaving the future trajectory of these investments open to ongoing observation and analysis.
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