Last October, Matthew Hougan, CEO of Bitwise Investments, predicted that spot Bitcoin exchange-traded funds (ETFs) would attract $55 billion in assets within their first five years. Fast forward to late August, and just eight months after their debut, the 10 newly approved U.S. funds have already amassed over $52 billion, according to data from TrackInsight.
“Clearly, I wasn’t bullish enough,” Hougan reflected. “This market is heading towards being measured in hundreds of billions of dollars.”
However, the future of Bitcoin ETFs remains uncertain. These funds mirror the price of Bitcoin, a notoriously volatile asset since its inception 16 years ago. Critics argue that Bitcoin is more speculative, likening it to art or fine wine rather than stable assets like gold, contributing to its volatility and risk.
The road to mainstream acceptance for Bitcoin as an asset class may be slow and unpredictable. A significant milestone occurred in August when Morgan Stanley authorized its 15,000 financial advisers to actively recommend two of the new Bitcoin ETFs—the iShares Bitcoin Trust and the Fidelity Wise Origin Bitcoin Fund—to clients.
“It’s no longer acceptable not to do due diligence on these products,” said John Hoffman, head of distribution and partnerships at Grayscale Funds. Although Grayscale’s Bitcoin Trust was not among the first products added to Morgan Stanley’s platform, Hoffman emphasized the shifting risk dynamics in wealth management. “The risk has flipped from investing in these products to the risk of not moving forward with them.”
Retail investors have been the primary drivers of capital flowing into these ETFs, with only a few large institutions, such as Wisconsin’s investment board and some hedge funds, publicly disclosing their positions.
“The first $50 billion has come from those who understand Bitcoin well,” said Sui Chung, CEO of CF Benchmarks, the firm behind the Bitcoin index used by several ETFs. “Now, we’re seeing the next phase: risk committees at institutions like Morgan Stanley are being forced to reconsider their stance as advisers can no longer deny client interest.”
However, the attention garnered by early adopters like Morgan Stanley highlights the challenges crypto ETFs face in becoming mainstream investment products.
“They’re being praised for being cutting-edge, which also underscores the perceived risk of being early movers,” noted Andrew Lom, an attorney at Norton Rose Fulbright with expertise in fintech.
Lom believes that the true measure of these ETFs’ mainstream acceptance will not only be their size but also their liquidity. “We may already be there,” he said. “Once these products are seen as part of the normal investable universe, we’ll see modern portfolio theorists begin to consider appropriate allocations.”
The next challenge will be whether model portfolios—turnkey investment solutions increasingly favored by financial advisers—will include these ETFs. Even Bitcoin’s most ardent supporters acknowledge that this shift could be six to 12 months away.
Ether ETFs: A Murkier Future
While Bitcoin ETFs appear to be on the path to mainstream acceptance, the outlook for spot Ethereum ETFs is less certain.
A month after their July 23 launch, Ethereum ETFs had accumulated nearly $7 billion in assets, with BlackRock’s iShares Ethereum Trust securing $900 million. However, this pales in comparison to BlackRock’s Bitcoin product, which hit $1 billion in just four days of trading.
“Many were excited until the launch, but then it became a classic ‘sell the news’ event,” said Adrian Fritz, head of research at 21Shares, which launched a spot Ether ETF in late July. “With more education and time, Ether will generate more excitement as well.”
Some experts are more cautious, noting that Ether is not only a smaller cryptocurrency but also fundamentally different from Bitcoin.
“If Bitcoin is digital gold, Ether is digital oil,” said Chung of CF Benchmarks. “Ethereum’s value could increase as people use it to move assets around the digital network, much like oil powers the real world.”
This hybrid nature means both regulators and investors must conduct more thorough research and due diligence.
“The sales pitch for Ether ETFs will be longer and more complex,” Chung added.
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