The Year in Crypto: Bitcoin and Ethereum ETFs Bring More Investors Into Crypto

In the fast-paced world of cryptocurrency, the launch of spot ETFs for Bitcoin and Ethereum in January and July, respectively, marked a significant change for the industry.

Spot Bitcoin ETFs have drawn substantial investments, allowing investors to access Bitcoin (BTC) without the complexity of managing private keys. This has also helped to legitimize Bitcoin on Wall Street. Concurrently, spot Ethereum ETFs have confirmed Ethereum's regulatory status, gaining traction recently and potentially paving the way for similar products for other cryptocurrencies like Solana and XRP in the U.S.

When Bitcoin ETFs started trading in January, BTC was priced at $46,000. Almost a year later, this price has more than doubled, surpassing $108,000 in December, partly driven by the political momentum from Donald Trump’s victory.

A total of eleven spot Bitcoin ETFs now manage around $113 billion in assets, as reported by CoinGlass. Bloomberg’s ETF analyst Eric Balchunas mentioned earlier this December that the Bitcoin held by these products might soon eclipse the estimated 1.1 million Bitcoin mined by Satoshi Nakamoto, Bitcoin's creator.

Just two days after that prediction, the milestone was indeed reached. Balchunas remarked, “This stuff is an anomaly in physics. There has never been a launch like this, and there will never be another one.”

Spot Bitcoin ETFs have brought considerable excitement, closely connecting investors with trusted brands through brokerage accounts. This has changed the previous sentiment of “Not your keys, not your coins,” which followed the collapse of FTX in 2022. By 2024, the appeal of investing in Bitcoin without the burden of key management was too attractive for many to overlook.

Nathan Geraci, president of the ETF Store, expressed his strong belief in the potential of Bitcoin ETFs. Earlier this year, he predicted they would break every record upon their release, which they have, with net inflows exceeding even his highest expectations.

BlackRock's Involvement

Among these ETFs, BlackRock’s iShares Bitcoin Trust ETF (IBIT) stands out as a leader, boasting over $53.5 billion in assets. This product has overshadowed Grayscale’s Bitcoin Trust (GBTC), which has $20 billion in assets. BlackRock’s profile grew significantly when CEO Larry Fink spoke about Bitcoin multiple times throughout the year.

Initially skeptical of Bitcoin, Fink later described it as a “potential long-term store of value” against currency devaluation. His belief in Bitcoin intensified, as he expressed a “major belief” in the asset, presenting it as a viable investment for those with concerns about global economic stability.

Bitcoin's advocates frequently liken it to “digital gold.” This comparison solidified when IBIT's assets surpassed those of BlackRock's Gold ETF (IAU), first launched back in 2005. Currently, IBIT ranks as the 32nd largest U.S. ETF by assets.

Analysts noted that BlackRock’s entrance reduced the stigma surrounding cryptocurrencies this year. Geraci highlighted that the remarkable growth of spot Bitcoin ETFs was unexpected. “Back in January, I’m not sure anyone envisioned the spot Bitcoin ETF category eclipsing $100 billion in assets by the end of the year,” he stated.

A Changing Market Dynamic

The introduction of spot Bitcoin ETFs has not only attracted vast inflows but has also transformed Bitcoin's market structure. Research from analytics firm Kaiko revealed that the approval of these ETFs enhanced trading volumes on cryptocurrency exchanges and improved the market's capacity to handle large trades. Additionally, trading activity concentrated during weekdays coinciding with Wall Street's business hours.

Donald Trump’s campaign rhetoric as a “crypto president” culminated in a remarkable price surge for Bitcoin. On November 6, after Trump’s reelection, Bitcoin soared past $75,000, and the trading volume for IBIT reached $1 billion within just 20 minutes, totaling $4.1 billion by the end of that day.

For context, this volume surpassed daily trading figures for well-known stocks like Berkshire and Netflix, according to Balchunas. He noted that spot Bitcoin ETFs shattered numerous records, from trading volumes to inflow speeds. Notably, BlackRock’s Bitcoin ETF reached $10 billion in assets quicker than any previous ETF in history, and it was the first ETF to achieve $50 billion in assets—more than five times faster than any other.

The approval of trading options for spot Bitcoin ETFs by the SEC in October further simplified and lowered the costs for institutional investors looking to gain Bitcoin exposure. Bitwise CIO Matt Hougan commented, “I mostly consider this another brick in the wall of normalization. We should be happy about it.”

Grayscale's Journey

The narrative around the launch of spot Bitcoin ETFs cannot neglect Grayscale, once the largest asset manager in the crypto arena. Its legal triumph against the SEC last year laid the groundwork for the approval of these products.

The SEC had long hesitated to approve spot Bitcoin ETF applications due to concerns about market manipulation. However, the U.S. Court of Appeals for the D.C. Circuit ruled last August that the SEC's repeated rejections of Grayscale’s ETF proposals were unlawful.

This year, Grayscale experienced significant outflows from its GBTC, totaling around $21 billion. Grayscale’s former CEO Michael Sonnenshein noted that such outflows were anticipated due to factors like the liquidation of GBTC holdings by collapsed crypto firms and GBTC's previously steep discount.

Additionally, the product's high expense ratio of 1.5% made it costlier to hold compared to competitors with ratios as low as 0.19%. Grayscale responded by launching a spinoff ETF for GBTC with a reduced expense ratio of 0.15%.

A similar trend occurred with the Grayscale Ethereum Trust (ETHE), which saw over $1 billion in outflows shortly after its conversion to an ETF, according to CoinGlass. Although the outflows have generally stabilized, they dampened excitement around the launch of spot Ethereum ETFs this summer.

Ethereum and Future Prospects

Despite previous doubts regarding Ethereum's regulatory status, the SEC approved applications for spot Ethereum ETFs in May, a surprising turn of events given Chair Gary Gensler's earlier reticence on the subject. A lawsuit by the Ethereum software company Consensys also indicated that the SEC viewed Ethereum internally as a security, but the approval confirmed its status as a commodity.

However, spot Ethereum ETFs have experienced significantly lower inflows compared to their Bitcoin counterparts. The Ethereum market also faced challenges, including $3.6 billion in outflows from ETHE, even as the group of eight spot Ethereum products attracted $2.3 billion in inflows since July.

Thus far, Ethereum’s price hasn’t reacted positively as Bitcoin’s has to the launch of these ETFs. Prices peaked around $4,100 earlier in December but have fallen to approximately $3,400. Unlike Bitcoin, Ethereum has failed to hit its all-time high in 2024.

Analysts indicate that this may be due to Ethereum's relatively lesser-known narrative among mainstream investors compared to Bitcoin’s established role as a store of value. According to David Lawant, Head of Research at FlaconX, Ethereum’s branding as a tech play or smart contract platform makes its investment story less straightforward outside of crypto communities.

Currently, Bitcoin and Ethereum represent the only digital assets with spot ETFs available in the U.S. However, amid rising interest, asset managers are also filing for ETFs involving Solana, XRP, Litecoin, and even Dogecoin. The approval status for these applications may rest on the anticipated leadership change at the SEC, as Paul Atkins has been nominated as the next commissioner soon. Meanwhile, Bitcoin and Ethereum ETFs are set to continue their trading journey, setting high aspirations for the future.

Bitcoin, Ethereum, ETFs