Assets Under First US Bitcoin ETF Surpasses $1 Billion in Just Two Days

JPMorgan analysts say it is not the Futures-based ETF driving Bitcoin prices but its narrative as a “better inflation hedge than gold.”

The first Bitcoin exchange-traded fund (ETF) in the US made its debut as the second-most heavily traded fund on record.

With a turnover of almost $1 billion, ProShares Bitcoin Strategy ETF’s (BITO) debut was behind only the BlackRock carbon fund, the latter ranking higher due to pre-seed investments.

On the second day, the pent-up demand for the Bitcoin ETF drove the assets held in the investment vehicle to over $1 billion.

BITO ended Wednesday with $1.1 billion under management after volume topped $1.2 billion — the quickest ever $1 billion mark reached by an ETF.

This off-the-chart performance was also reflected in the price of Bitcoin, which made a new all-time high at $67,000 yesterday. As of writing, the $1.22 trillion asset is hovering around $65k.

“It’s a validating moment,” said Jesse Proudman, co-founder, and CEO at crypto advisory firm Makara.

“It’s no longer a question of does this asset class continue to exist — I think that’s a really meaningful mark in the history of the broader digital-asset class.”

According to JPMorgan strategists, it is inflation concerns instead of the first US Bitcoin ETF that is driving cryptocurrency to record highs. JPMorgan's Nikolaos Panigirtzoglo wrote,

“By itself, the launch of BITO is unlikely to trigger a new phase of significantly more fresh capital entering Bitcoin.”

“Instead, we believe the perception of Bitcoin as a better inflation hedge than gold is the main reason for the current upswing, triggering a shift away from gold ETFs into Bitcoin funds since September.”

JPMorgan analysts have doubts about the ETF bringing in new money because of a “multitude” of options related to Bitcoin already available.

“CME OI futures rampup (+90% in October) combined with the massive BITO volumes tells me they are wrong. Impossible to be 100% sure ofc, and there seldom is a single driver behind the wheel. Either way, bullish,” commented trader and economist Alex Kruger.

However, that's just the beginning, as Bitcoin futures ETFs from VanEck and Valkyrie are also potentially coming to market this month.

Valkyrie has won the approval of the U.S. Securities and Exchange Commission (SEC) and will start trading on Friday. It will trade on Nasdaq under the BTF ticker. VanEck's Bitcoin futures ETF is also slated to start trading early next week.

This is already leading to a race to cut costs, with VanEck’s ETF (XBTF) carrying a management fee of 0.65%, lower than BITO’s 0.95% expense ratio.

“The decades-long fee war has a new battle with Bitcoin ETFs,” Todd Rosenbluth, head of ETF and mutual fund research at CFRA.

“When an ETF comes to market second or third with a nearly identical product, it can be at a disadvantage unless it can stand out with a lower fee.”

Meanwhile, the BITO ETF, according to Vanda Research, was likely ignored by retail traders.

Retail investors bought $7.68 million in BITO shares on Tuesday, well below the $57 million shares of Coinbase in April, it said in a note.

Instead of retail, it was likely a combination of funds, investment advisors, and private banking clients shorting the ETF to gain from contango — the prices for future contracts being higher than the spot price.

“[Most] pundits interpreted the massive trading volumes as a roaring success for BITO. From retail investors' perspective, it wasn't as much of a blockbuster,” wrote Vanda analyst Giacomo Pierantoni and senior strategist Ben Onatibia.

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