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The SPDR® S&P 500® ETF Trust (NYSEARCA:SPY) came to market more than three decades, touching off a still unabated boom in U.S. passive investing and adoption of exchange traded funds.
Today, more than 3,200 exchange traded products (ETPs) trade on domestic exchanges. A large number to be sure and one that’s likely to continue growing over time. After all, the number of mutual funds in the U.S. is still more than double that of ETPs. That big number implies there have been plenty of successes and duds in the more than 30-year history of domestic ETFs.
There’s also been a vast group of highly anticipated ETF launches. The yet-to-debut bitcoin ETF(s) is the highly anticipated category, but various regulatory happenings indicate it wouldn’t be surprising to see such funds come to market in the early stages of 2024.
Interestingly, if a spot bitcoin ETF or ETFs come to market at some point next year, it’s possible these products will disappoint in terms of adoption among advisors and thus, asset-gathering proficiency.
Be Careful of Gold ETF Comparisons
Bitcoin is often referred to as digital gold and that comparison has made its way to the world of ETFs where some experts believe there are parallels between spot bitcoin ETFs and bullion-backed funds such as the SPDR Gold Shares (NYSEARCA: GLD).
A strong case can be made that it was ETFs backed by physical holdings of gold, some of which are now among the largest commodities ETFs in the world, democratized commodities investing and made it more efficient for and appealing to a broader audience, including advisors.
In essence, gold-backed ETFs and their precious metals counterparts are spot products – vastly superior mousetraps compared to futures-based commodities exchange traded products, which can subject investors to the scourge of negative roll yield.
While some of those issues are germane in the spot bitcoin ETF conversation, a recent survey by Needham analyst John Todaro indicates enthusiasm for a spot bitcoin ETF isn’t as overwhelming as previously believed. Todaro polled 20 financial advisors, 75 Coinbase users and more than 200 retail investors and found that advisors will be the primary adopters of a spot bitcoin ETF, but the extent to which that happens could be questionable.
“The main driver of a Bitcoin ETF, in our view, will be RIAs,” said Todaro, as reported by CNBC. “With nearly half of our advisors answering that their current bitcoin offering is either nonexistent or directing clients to buy bitcoin on their own at a crypto platform, we believe this is where most new buyers would come from.”
Still, the Needham analyst noted just 5% to 10% of advisors polled expect clients to own a spot bitcoin ETF if such a product comes to market in the U.S.
What Gives?
Regardless of underlying asset class, advisors are essential to the success of new ETFs and that will be true of spot bitcoin funds. Over time, it’s possible that advisors and wealth managers will prove impactful in terms of driving assets to spot bitcoin ETFs, but for now, that might not be the case.
Part of the problem, as noted by Needham, is that 11% of those surveyed that don’t already own bitcoin described themselves as “likely” or “very likely” to change that.
Then there’s the issue of some clients (nearly half) being more inclined to own the digital currency through an exchange, not an ETF. Bottom line: A spot bitcoin ETF in the U.S. may be a “big deal,” but may not be the seminal event some were hoping for.