Bitcoin ETF gets off to a roaring start, but Wall Street isn’t all cheering

Original source: Wall Street Journal Original author: Jack Pitcher, Vicky Ge Huang, Alexander Osipovich

BlackRock's funds continue to perform well on the first day of trading for the Bitcoin ETF.

New Bitcoin ETF has a strong first day of trading, but Vanguard refuses to join the fun.

The asset management giant said on Thursday it would not offer a new spot Bitcoin ETF on its own brokerage platform. The move highlights Vanguard's concerns about Bitcoin's suitability for many retail investors.

Vanguard said in a statement: "This type of product is inconsistent with our focus, which is assets such as stocks, bonds and cash. In Vanguard's view, the future It is the investor who lays the foundation for a balanced long-term investment portfolio.”

The U.S. Securities and Exchange Commission (SEC) on Wednesday approved the first batch of U.S. Bitcoin Bitcoin ETFs have been hailed by cryptocurrency circles as a game-changer, allowing mainstream investors to buy and sell Bitcoin as easily as stocks and mutual funds.

Investors responded enthusiastically. The 10 spot Bitcoin ETFs saw trading volume of more than $4.6 billion on Thursday, according to Dow Jones Market Data. BlackRock’s Bitcoin ETF had the highest first-day volume of any new ETF in the past. Bitcoin prices edged up 0.5%, topping $46,000.

Vanguard is not the only platform limiting investor access to such funds. Retail investors said on social media platform X that they were also unable to purchase such products on the trading platforms of Citigroup, Bank of America, Edward Jones and UBS.

Many of them have not yet been approved by the compliance departments of brokerage firms for Bitcoin ETFs, resulting in the failure of these products to be launched normally. A Citi representative said the bank is evaluating the products for retail investors. Other brokerages declined to comment or did not respond to requests for comment.

Vanguard has a history of restricting investors from buying products it considers unsafe. In 2019, for example, Vanguard ended purchases of leveraged and inverse ETFs, citing risks.

Some cryptocurrency fans expressed outrage at Vanguard's move. Neil Jacobs, director of brand engagement at Bitcoin investment company Swan Bitcoin, said he was preparing to transfer some of the assets in his personal retirement account to a Bitcoin ETF, only to find that it was restricted by Vanguard. Now, he said, he plans to switch to a different supplier than Vanguard.

"I want to be treated like an adult," Jacobs said. "No matter which company I am a customer, I want to be respected. But here I don’t feel respect.”

According to data from Morningstar Direct, the highest trading volume on the first day of ETF listing has been held by another BlackRock fund—— The U.S. Carbon Transition Readiness ETF (U.S. Carbon Transition Readiness ETF) maintained. This fund was launched in April 2021, with a first-day turnover of US$1.16 billion. Ranking second is ProShares’ Bitcoin Futures Fund, launched in October 2021, with first-day trading volume of $1.01 billion.

BlackRock's iShares Bitcoin Trust traded just over $1 billion on Thursday.

The first days and weeks of trading will ultimately determine whether these funds win or lose, analysts say. Coveted institutional investors may favor funds with the largest turnover and the most liquidity. Most funds charge investors low fees and need to grow to tens of billions of dollars in assets to generate significant profits.

"The first shot at a Bitcoin ETF is loud, but it's just the beginning," said Charles Ragauss, head of trading at Tidal Financial Group. "It will take time for due diligence and platform approval before investors can purchase these ETF products from different institutions."

Among other Bitcoin funds, Fidelity Investments (Fidelity Investments)’s Wise Origin Bitcoin Fund closed at $713 million, followed by funds run by Cathie Wood’s ARK Investment Management and 21Shares at $289 million. (The highest trading volume was the Grayscale Bitcoin Trust, which turned into a spot Bitcoin ETF, with a total turnover of $2.3 billion.)

Some other funds performed weaker . The Valkyrie Bitcoin Fund did about $9 million, and the WisdomTree Bitcoin Fund did less than $7 million.

There are signs that the WisdomTree ETF is not attractive enough to investors and professional traders, reflected in the wide bid-ask spread. The spread briefly exceeded 75 cents on Thursday, while larger funds typically have bid-ask spreads of just a few cents. WisdomTree said it is focusing on "cultivating long-term endogenous demand."

One ​​of the investors who bought a spot Bitcoin ETF on the first day was Keith Rauch, a 70-year-old retiree from Wisconsin. He had a brokerage account with Fidelity Investments, and soon after the spot Bitcoin ETF began trading, he began investing in small weekly purchases of $10 in the Fidelity Investments Bitcoin Fund. He said he was attracted by the low rates, which were zero for the first six months and 0.25% thereafter, but he was still a little uneasy.

"I just want to give it a try and see if I can accept it." He said: "After six months, I may quit or I may increase my investment."

The 11th fund did not start trading as scheduled. The SEC has not yet approved the registration application of Brazilian cryptocurrency investment company Hashdex.

Unlike other companies that are expected to launch ETFs, Hashdex wants to convert existing futures Bitcoin funds into spot Bitcoin funds. As of now, the fund still trades as a Futures Bitcoin ETF under the symbol DEFI. Hashdex said in a statement that the fund will convert to holding Bitcoin directly at a later date.

But this twist did not stop Hashdex from celebrating. The investment firm hosted an event at PubKey, a Bitcoin-themed bar in New York, on Wednesday night to celebrate the approval of its Bitcoin ETF.

The SEC's green light for a spot Bitcoin ETF could open the door to more variations of Bitcoin funds, including leveraged and inverse funds.

Grayscale on Thursday submitted a prospectus for an actively managed "covered call" Bitcoin ETF that would generate income by buying and selling Bitcoin options while allowing investors to Gain exposure to Bitcoin price changes. The fund has not yet been approved.