Spot bitcoin ETF: Why smaller firms may struggle to compete

Thu, Dec 28, 2023, 5:00 AM

The crypto world is widely expecting the Securities and Exchange Commission to approve a spot bitcoin ETF in January. But approval will only be half the battle. With several firms applying for these ETFs, it's likely only a handful will become major players. Bloomberg Senior ETF Analyst Eric Balchunas says there are two camps vying for customer funds: those that consider themselves "crypto people" who know the space well and the big institutional players like BlackRock and Fidelity.

Balchunas points out that the larger industry players will appeal to older investors with more money to invest. At the end of the day, Balchunas think there will be a "strong middle class" of ETFs with a $200-$300 million in assets, but that there's "probably only room for one liquidity stud."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live or watch the Yahoo Finance interview with Ark Invest's Cathie Wood here.

Video Transcript

- Eric, the note that you referred to, you refer to the coin tucky Derby amongst these different organizations trying to get approval. But after that, they then have to retract assets. And we yesterday-- yesterday had this chance to talk to Cathie Wood of ARK Invest who, of course, is one of the entities that is trying to get approval.

And she gave me her sales pitch for why she thinks Ark is well poised to attract assets. I want to play for you what she said.

CATHIE WOOD: This is no secret. But we've been doing research on Bitcoin since 2014. That was our first paper.

And as others were naysaying it, we were out there, banging the drum, saying this is a new asset class.

- Right. So, basically, what Cathie is saying is they've been bullish on Bitcoin, they have a deep expertise in it. She also mentioned that they have partnered with 21 shares, which is an exchange-traded product issuer that has spot products in Europe.

How do you think they're going to fare? Who do you think is going to get the most assets here?

ERIC BALCHUNAS: Yeah, look, there's going to be really two general factions here. There's going to be the people who say, we're really crypto people, not like these Wall Street opportunists like BlackRock and fidelity. Bitwise already has a commercial out that says crypto specialists.

And so, those are the firms, and I would say the same thing if I were Cathie in 21 shares, they really do care about this space. You could argue the big guys are more interested in making $1. That said, if you're talking about where the real money is in terms of where in for these ETFs, it's in the advisor market. They have about $33 trillion in assets.

And these advisors, and the rich boomers they serve-- they love brand names. And so, that definitely, I think, favors BlackRock fidelity, regardless of whether people think. In fact, being a crypto specialist may actually not play as well amongst the, sort of, like over 65 Boomer crowd that has all the money. So this is a really interesting race.

I do think there'll be a strong middle class where there'll be a couple who have 200 million, 300 million. We've seen this in ETFs. But there's probably only room for one liquidity stud. And that is why this is so important.

And if you are the liquid one, the GLD of Bitcoin, you never have to lower your fees. You have pricing power forever. You're immune from the Vanguard effect. And it's a beautiful thing. And that's why this race is so intense.

- Yeah, that's what I keep saying. You know GLD, you know USO, you don't necessarily know the other ones. I find it ironic, Eric, I mean, only in crypto, would you be having the discussion of the most passionate issuer is the one that is something that is an advantage, which I think is just so very crypto.

But to your point, if the retiree class, if the institutional investor is the real audience for these, then the whole to the moon stuff isn't necessarily going to fly anymore.

ERIC BALCHUNAS: Yeah. In fact, if I was BlackRock, I joked on the team that their ad, should just be the adults have arrived because I think after FTX and Binance, there's just been, like, sort of, issue after issue, not with Bitcoin, I think it's an interesting asset for a lot of people-- it's the intermediaries. And not only that, besides some of the shady activities and FTX fraud in general, you have the idea of really high commissions.

And so, I think you get a BlackRock involved. It's going to trade at one basis point. It's a trusted brand. I think the fee could be between 40 and 70 basis points, somewhere in there, which isn't bad. And you have all of the SEC stamp on it. That could be very appealing to, again, the boomers.

But you have to remember, they have all the money. Not all the money, but most of it. And that's why the tickers are also very sober. I mean, IBit, BitB, BTCW. There's only one or two real fun ones.

And you can have all fun ones. So I think this is really a product that's aimed at the financial advisory, and sort of, the traditional finance era of crypto.

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