After a long delay, spot Bitcoin exchange-traded funds (ETFs) have arrived on the market. BlackRock’s IBIT is currently the fifth-largest ETF (among all ETFs) by inflows this year, and rival funds are not far behind. It remains to be seen whether this growth rate will keep pace and match the bullish forecasts from companies such as Standard Chartered Bank and Fidelity that set year-end ETF valuations as meteoric, but it remains to be seen whether Bitcoin ETFs will continue to grow. It’s clear that it’s here to stay.
The question is how Wall Street will approach this new-found method of gaining exposure to Bitcoin, and whether ordinary investors want a piece of the action.
“We believe Bitcoin has the potential to become one of the hottest brands on Wall Street over the next decade,” said Mike Willis, CEO and founder of ONEFUND. “You are at the beginning of the ‘Bitcoin era’ on Wall Street.” Willis declined to give a price prediction, but he believes Bitcoin could easily catch up to gold’s market cap. said.
This is an interesting prediction given ONEFUND’s strategy in launching its own Bitcoin ETF bundle. The independent index fund operator, best known for its $106 million INDEX ETF tracking the S&P 500, holds both Bitcoin and traditional stocks to appeal to risk-averse retail investors. The plan is to launch a number of “Cyber Hornet” funds that will
Most asset managers won’t advise clients to allocate more than 1% to 3% in cryptocurrencies, Willis said. But even that small recommendation can expose financial advisors to legal risk. “Hardcore Bitcoiners may be used to it, but 90% of Wall Street and traditional investors are the only ones not used to a 40% drop in one month.”
“If I’m down 40% for a client, they’re burning out my phone. If I’m down 50%, they’re out. If I’m down 60% or 70%, that’s a potential fiduciary.” “There is potential for personal liability and potential litigation. Advisers are aware of that,” said Willis, who co-founded ONEFUND in 2015 with Paine Weber and Smith Barney after previously working at UBS.
The ETF closest to launch, which received SEC approval under the ticker ZZZ, will allocate 75% of its capital to S&P and 25% to Bitcoin futures (with the option of holding spot Bitcoin, Willis said). Ta). The idea is to mitigate Bitcoin’s potential downside risk and significant volatility by investing in “Wall Street’s most widely held index strategy.”
Willis expects to see a number of hybrid funds spring up with strategies to protect Bitcoin’s downside “volume,” or volatility, perhaps using U.S. Treasuries and other lower-risk asset classes. Told. This is also a way for the fund to differentiate itself, given the intense competition after 11 spot Bitcoin ETFs were approved on the same day.
Like many people, Willis believes that a race to the bottom in management fees is one of the few ways companies can become less competitive. Some companies offer promotions, such as Bitwise waiving fees for the first six months or until the fund reaches a certain asset threshold. However, these marketing efforts are only effective for a limited period of time.
Another way companies compete is in what they do with the underlying Bitcoin they buy with investor money: whether it’s leveraged to generate yield for the company or put into cold storage. Willis said some funds may rehypothesize (or lend) Bitcoin to generate returns, which could earn them “hundreds of basis points.”
ONEFUND, for its part, does not intend to compete on fees and believes it can charge higher interest rates because its prospectus guarantees that Bitcoin will never leave cold storage. banks for custodial services). But there are other, less obvious ways that companies can diversify away from other companies.
For example, the only company that maintains high fees is Grayscale, which charges 1.5% for its popular GBTC product. GBTC was originally launched as a closed-end trust in 2013 and has amassed significant brand equity as the first traditional entrant into Bitcoin. The fund has seen notable withdrawals since it transitioned to ETFs this year, but Willis said he’s surprised the fund hasn’t lost any more money.
“It’s loyalty. It’s laziness. And the other aspect is that Bitcoiners don’t want to go to BlackRock or Fidelity, they want to keep it within the community,” he said. ONEFUND hopes to capitalize on a similar camaraderie among Bitcoiners, a non-institutional institution of sorts. This is one of the reasons why the company chose his Cyber Hornet branding, and this phrase is most closely associated with uber-bitcoiner Michael Saylor, who is not associated with this product.
The company, which made headlines for allowing shareholders of its INDEX fund to vote by proxy, has also secured a number of “great” tickers for its ETFs, all of which have different allocations between Bitcoin and the S&P 500. . Willis said triple-letter tickers like the Nasdaq’s “Qs” for QQQ are valuable real estate, referring to the company’s flagship Bitcoin ETF’s “triple Z” ticker.
In fact, many recently launched ETFs include Valkyrie’s BRRR (referring to the pandemic-era “money printer go BRR” meme) and VanEck’s HODL (referring to how Bitcoiners buy, hold, and rarely sell). ) and other meme-worthy names.
“We believe this brand will represent doing things the ‘right way’ – non-institutional choices that represent the community,” Willis said. . ”
Still, in some ways, Mr. Willis’ strategy revolves around Wall Street’s entry. While this may not be the most “orthodox” way to get people to spend Bitcoin, it is probably the easiest and safest way to mass participate in the Bitcoin economy via an ETF. It will fulfill Cory Klipsten’s dream of creating “10 million Bitcoiners,” Willis said.
The first turn in the supposed flywheel came last year when BlackRock announced plans to launch a Bitcoin ETF, in a way a front for other Wall Street firms to join. Now that ETFs are in operation, more and more money will flow into Bitcoin over the next decade, starting with model portfolios, retirement accounts, pension plans, and ultimately leading to Bitcoin becoming a “mainstream” investment. Willis said the asset class will become “the largest asset class in the world.”
“Bitcoin has been around for 15 years, but on Wall Street, Bitcoin didn’t exist,” he said. “This changes everything.”