Mar 27, 2023
Crypto Industry Defies Strife as ETP Debuts Pick Up, Flows Rise
(Bloomberg) -- Exchange-traded products focused on digital tokens are launching at the fastest pace since before the collapse of FTX.
The new funds arrive as investors pour money into crypto products amid turmoil in the banking industry. But they also come as the crypto industry is being assailed by a number of regulatory enforcements and actions looking to clamp down on fraud and market manipulation. On Monday, cryptocurrency exchange Binance Holdings Ltd. was sued by the US Commodity Futures Trading Commission for allegedly breaking derivatives rules.
“One of the most common reasons for crypto that advocates have always said is that it’s an alternative to the traditional financial system,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “So in the midst of an environment in which it’s front-page news every day that there are issues in the US banking industry, I think it’s viewed as an opportunity to tout an alternative.”
Crypto fund provider CoinShares launched two physically backed exchange-traded products in Europe on Monday, while an investment product tied to Bitcoin from Bitwise started trading in the US last week. That’s all on top of three new crypto ETPs that debuted in Europe from issuer Global X earlier this month.
That’s the greatest number of product debuts in one month since September, when there were seven launches, before the implosion of the once-vaunted FTX empire, which crypto investors have been attempting to move beyond.
The overall universe of funds is attracting investor money, too. All in all, cryptocurrency ETPs saw about $182 million in inflows for the week ending March 24, the best weekly showing since May 2022, according to data compiled by Bloomberg Intelligence.
The industry is likely betting that there’s still a lot of demand for crypto products even though prices were volatile last year, says Todd Sohn, ETF strategist at Strategas Securities.
“There’s still some demand out there for easy, transparent access” to alternatives like crypto, Sohn says.
Bitcoin and its brethren were staging somewhat of a comeback this year, as the financials sector sold off amid a banking crisis that buoyed the return of original narratives surrounding Bitcoin’s genesis, including that the digital asset’s independence from the traditional financial system could make it immune to its stresses.
But the rally was derailed Monday after the Binance lawsuit. Bitcoin fell as much as 4.5% on the news.
In the US, ETFs focused on digital assets remain the best performing for the year thanks to the rally in crypto prices, including a roughly 63% year-to-date run for Bitcoin. The Valkyrie Bitcoin Miners ETF (ticker WGMI) is up more than 90% in 2023, while the Vaneck Digital Assets Mining ETF (DAM) and the VanEck Digital Transformation ETF (DAPP) round out the top three spots with returns of 75% and 59%, respectively.
To be sure, funds can take a long time to see the light of day between filing and launch, and timing anything perfectly is near impossible, says Bloomberg Intelligence’s Athanasios Psarofagis. Plus, crypto firms, given the ethos of truly believing in the asset class, means they’re always “all in.”
“Also, as backwards as it may sound, it’s not a bad idea to launch after a bad run,” he says, adding that your performance looks great since inception if the market comes back because you launched at the bottom.
“So it’s like, ‘it can’t get any worse, let’s launch now,’” Psarofagis says.
--With assistance from Sam Potter.
©2023 Bloomberg L.P.