ETFs Are Eating the Cryptocurrency Markets

Exchange-traded funds are eating the crypto markets. Since their debut in January, U.S.-listed cryptocurrency ETFs have seen $38 billion of inflows, with more than half of that coming in just the past three months.

Today, ETFs that hold spot bitcoin or ether have nearly $129 billion in assets under management, equal to nearly 5% of the market cap of those two cryptocurrencies.

The ETF share of ownership is greater for bitcoin than it is for ether. Spot bitcoin funds—which launched on Jan. 11— hold around $115 billion worth of bitcoin, while spot ether ETFs—launched on July 23—hold close to $14 billion worth of ether.

ETFs Eating Up With 5.5% of Bitcoin Market Cap

That means that spot bitcoin ETFs represent around 5.5% of bitcoin’s market cap, while spot ether ETFs represent around 2.7% of ether’s market cap.

To be clear, these percentages might overstate how quickly cryptocurrency ETFs are taking over the crypto markets.

When spot bitcoin ETFs began trading in the U.S. earlier this year, the Grayscale Bitcoin Trust (GBTC) already had just short of $30 billion in AUM. 

Once converted into an exchange-traded fund, its bitcoin was attributed to ETFs, even though it had purchased those coins before it had become an ETF.

Likewise, when the Grayscale Ethereum Trust (ETHE) became an ETF in July, it already had $10 billion invested in it.

Today, spot ether ETFs collectively hold $14 billion of ether, only modestly more than ETHE held before it became an ETF.

This is not to downplay the incredible success of cryptocurrency ETFs. They’ve blown past even the most bullish expectations, breaking numerous ETF records along the way.

It’s hard to imagine a scenario where these ETFs don’t continue to grow and represent an increasing proportion of the cryptocurrency markets.

At some point, it’s conceivable that spot bitcoin ETFs could account for 10% or even 20% of bitcoin's market cap— maybe even more.