Amid crypto winter, many firms are placing bets on the long-term attractiveness of bitcoin and ether.
Investment companies have launched a rush of exchange-traded funds despite a decline in values during the previous 11 months, believing that elite cryptocurrencies and the technology that powers them would finally triumph.
Half of the more than 180 active crypto exchange-traded products (ETPs) and trust products worldwide have been introduced since the beginning of the bitcoin bear market, according to a report released this month by Morgan Stanley. The proliferation occurred when the value of all market assets fell by 70% to $24 billion as cryptocurrency values plummeted.
According to Morgan Stanley, the top two cryptocurrencies, bitcoin and ether constitute the focus of almost 95% of those 180 funds.
Naturally, the intensity of the desire does lessen when the market is slower, prices are lower, and individuals have lost money, according to Chen Arad, co-founder of the crypto risk monitoring company Solidus Labs. Overall, I don't believe anyone is giving up. Thus it's not true in the long term.
Retail and institutional investors don't have to worry about safely storing their cryptocurrency and avoiding hacks and heists because ETPs offer exposure to digital assets on a regulated stock market.
This year, net inflows into bitcoin investment products totaled around $453 million, with much of it going into bitcoin and investment vehicles that include the biggest cryptocurrencies, according to a report from digital asset manager Coinshares.
According to Eliezer Ndinga, head of research at 21shares, "there is greater asset allocation towards baskets that combine the top five or ten crypto assets by market size. It's a flight to quality compared to alternative assets in the crypto business."
However, most active crypto ETP products are registered outside the US, with spot crypto offers leading the way in Switzerland, Canada, Australia, and Brazil.
One reason is that US regulators have rejected several applications for spot bitcoin funds, which mirror the price movements of the cryptocurrency, citing several factors, including the absence of surveillance-sharing agreements with regulated markets regarding the underlying assets of the spot funds.
As contracts approach settlement day, investors in futures-based funds frequently have to bear the additional cost of the futures rollover.
In the last three months, Bitcoin has been down 17%, while the ProShares Bitcoin Strategy ETF, which follows bitcoin futures, has fallen around 21%. The largest bitcoin fund in the world at the moment, Grayscale Bitcoin Trust, is down 34%.
Assets under management (AUM) for ProShares Bitcoin Strategy ETF decreased to a little over $600 million at the end of September, according to Refinitiv Lipper data. When it debuted a year ago, it quickly raked over $1 billion.
According to statistics from the company, Grayscale's Bitcoin Trust's AUM dropped to $12.2 billion from over $30 billion at the end of 2021.
Will Peck, head of digital assets at WisdomTree, said he wasn't shocked by the decision but expressed hope that a compromise might be achieved. Last week, U.S. watchdogs barred WisdomTree's spot bitcoin ETF.
"I think we'll eventually get there, but for the foreseeable future, we'll be in a holding pattern."