Caleb & Brown CEO’s thoughts on the Impact of ETFs on Cryptocurrency
Exchange-Traded Funds (ETFs) have evolved from a niche investment option to become one of the most popular, disruptive and widely discussed product innovations in the wealth management industry, and now they’ve made their way into crypto with spot Bitcoin ETFs.
Since being approved in January, Bitcoin ETFs have seen record capital inflows, with US spot Bitcoin ETFs now worth over $57 billion[1].
As well as increasing value, Bitcoin ETFs are also improving Bitcoin’s recognition. “Greater Bitcoin market adoption and positive sentiment for the asset class is increasing its legitimacy and that of cryptocurrency generally,” said Jackson Zeng, CEO of crypto brokerage firm Caleb & Brown.
Amidst the current interest surrounding Bitcoin Spot ETFs, crypto investors are looking ahead to a possible US Securities and Exchange Commission’s (SEC) approval of spot Ethereum ETFs this month.
“The Ethereum ETF proposition is an exciting one,” said Zeng. “With real products on the network, more daily users, and less issuance which leads to lower inflation, Ethereum, as an asset, has fundamentals Wall Street would prefer over Bitcoin.
“If we now think of Bitcoin as an accepted traditional asset, Ethereum looks even more like a traditional asset as it generates fees that the network receives. The tricky part is that there’s a little bit more regulatory complexity than Bitcoin and this will be a challenge,” said Zeng.
This complexity works against Ethereum’s chances of being approved, however, Zeng anticipates a significant amount of inflow into Ethereum ETFs if it does get approved.
Regardless of Ethereum’s potential approval, the increase in Bitcoin’s value is seeing capital flow to other cryptocurrencies including Ethereum. “Capital flows up the risk spectrum, so it'll go from Bitcoin to Ethereum, then to altcoins. We've seen this in previous cycles,” said Zeng.
Cryptocurrency investment through ETFs present as an opportunity to some, offering a lower barrier to entry for those accustomed to the conventional brokerage ecosystem. Institutional participation, diversified trading strategies, liquidity, and lower entry costs, are also positives, but Zeng is wary of ETFs when it comes to cryptocurrency for a number of reasons.
“Not owning the underlying asset is a negative, while being unable to trade 24/7 like in crypto markets through an exchange or a crypto brokerage means you’re at the mercy of the stock exchange’s trading hours,” said Zeng. “Crypto ETFs can carry higher risks than traditional ETFs, while understanding the composition and strategy of certain ETFs may require a higher level of financial knowledge.”
Further, despite aiming to replicate the performance of an underlying index, ETFs’ Tracking Error, whereby ETFs may not perfectly track their benchmarks due to factors like trading costs, management fees, and portfolio rebalancing can be cause for concern.
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Key Facts:
- Bitcoin ETFs are also improving Bitcoin’s recognition.
- Since being approved in January, Bitcoin ETFs have seen record capital inflows, with US spot Bitcoin ETFs now worth over $57 billion.
- "The Ethereum ETF proposition is an exciting one" - Jackson Zeng.
- With real products on the network, more daily users, and less issuance which leads to lower inflation, Ethereum, as an asset, has fundamentals Wall Street would prefer over Bitcoin.
- Ethereum's complexity works against its chances of being approved, however, Zeng anticipates a significant amount of inflow into Ethereum ETFs if it does get approved.
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Caleb & Brown is the crypto investor’s expert partner, helping its clients navigate the complexities of investing in crypto assets with a suite of best-in-class personal brokerage, asset management, and research products.
Caleb & Brown Asset Management provides sophisticated investors access to the most promising crypto assets through professional, actively managed portfolios.
Founded in 2016, they put personalised service, transparency, education, and consumer protection at the heart of everything they do.
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