Far from the enthusiasm of the first days, Bitcoin ETFs launched on US territory are visibly losing their appeal. Backed by CME futures contracts, they are counting less and less of them, testifying to a waning interest in this type of expensive stock market product. The price of bitcoin, which has lost more than 40% since its peak on November 10, is of course no stranger to this state of affairs.
The 1st Bitcoin futures ETF looks gray
It was yesterday. More precisely on October 19, an eternity on the crypto scale, the first Bitcoin ETF authorized on US territory exploded (almost) all the counters. For its first day of trading on the New York Stock Exchange, ProShares’ Bitcoin Strategy ETF (BITO) had nearly $1 billion in trading volume, an all-time high putting it on the second step of the podium as a listed product.
The two others who followed him closely, Valkyrie Bitcoin Strategy ETF (BTFD) and the VanEck ETF ( XBTF), did not experience such enthusiasm. Their performances have always been weaker, never erasing the first mover advantage.
Nevertheless BITO, since its flamboyant beginnings, has only lost its luster.
Its assets under management now stand, according to the Dividend resource site, at $1.16 billion corresponding to 4,904 futures contracts of the Chicago Mercantile Exchange (CME). Last November, he held $1.4 billion despite a limited number of contracts by the Chicago Stock Exchange.
The other two ETFs are far behind. Bitcoin Futures ETF Valkyrie currently has $71.9 million in assets under management while the VanEck Bitcoin Strategy ETF currently only holds $15.8 million.
So undeniably bearish crypto market backdrop in recent weeks dampened investor enthusiasm, the Arcane Research site in its latest weekly update offers another explanation.
The reasons for disinterest
According to him, the drop in interest for BITO is said to be due to the high fees investors have to pay to hold them, linked to the mechanism of the financial product which multiplies the costs of passage. Fact, the management fees of an ETF based on futures contracts is around 0.95% per year. This may seem modest but can prove to be heavy in the long run, with the investor losing on fees, gains on these fees and compound interest.
For example: an individual who saves $100,000, earns 4% per year and pays an annual fee of 0.25% would have $30,000 more after two decades than the same person who pays a fee of 0.95%.
But peace of mind comes at a price, and if investors are greedy for these regulated instruments, it’s because they allow them to gain exposure to digital assets without worrying about the difficulties inherent in buying them directly and holding them. Except that in the case of ETFs backed by CME contracts, they do not expose themselves directly to bitcoin but to a derivative of a derivative, which explains why the VanEck Bitcoin Strategy ETF, which nevertheless has lower management fees of around 0.65%, does not really attract the crowds. In the end, the bill turns out to be expensive to hold just an ersatz of BTC.
The solution, of course, lies in offering a spot ETF that would expose investors directly to bitcoin at a lower cost. But the US Security Exchange Commission, which manages the authorization of this type of product, still does not seem ready to grant it.