Bitcoin Funds Pull In Money at Record Pace

Investors have piled into the funds at a historic clip since their Jan. 11 launch, with total assets in the 10 U.S. spot bitcoin funds on the market swelling to nearly $50 billion.
Investors have piled into the funds at a historic clip since their Jan. 11 launch, with total assets in the 10 U.S. spot bitcoin funds on the market swelling to nearly $50 billion.

Summary

BlackRock’s bitcoin ETF is fastest ever to reach $10 billion in assets.

Bitcoin exchange-traded funds have been a smash hit, helping feed into a frenzy that has sent the cryptocurrency’s price toward a record high.

Investors have piled into the funds at a historic clip since their Jan. 11 launch, with total assets in the 10 U.S. spot bitcoin funds on the market swelling to nearly $50 billion.

BlackRock’s iShares Bitcoin Trust eclipsed $10 billion in assets Thursday, the fastest a new ETF has ever reached that milestone. Fidelity’s fund, now with more than $6 billion in assets, is already the asset manager’s third-largest ETF and has accounted for the bulk of its net ETF inflows this year.

“It’s been a persistent wave of demand. These products came out of the gates strong and they’ve remained strong," said Todd Rosenbluth, head of research at VettaFi.

The funds allow everyday investors to buy the digital asset through their brokerage accounts, without having to go to a crypto exchange or to funds that track bitcoin’s price through futures contracts.

Some analysts predicted the funds’ big initial splash would be followed by a slowdown, but instead the pace of flows has accelerated in recent weeks as bitcoin prices approached record levels. Bitcoin traded above $67,000 Monday afternoon, just shy of its November 2021 record of $68,990.90. It ended 2023 near $40,000 and was hovering around $23,000 a year ago.

Many analysts attributed bitcoin’s advance in the second half of last year to anticipation that the ETFs would be approved. Now, they say investors’ embrace of the funds is driving more bullishness, in addition to creating new demand.

“This is one of those rare instances where the price of the underlying asset is tied to the fund," Rosenbluth added. “It’s hard to quantify, but bitcoin’s performance is tied to the hope that there will be greater availability. There’s a circular benefit here."

The BlackRock fund is already in rarefied air: Only about 4% of the more than 3,000 listed U.S. ETFs have more than $10 billion in assets, according to Bloomberg Intelligence.

Nine of the bitcoin funds were new to the market in January, while Grayscale’s Bitcoin Trust converted into an ETF with almost $30 billion of existing assets the day the others launched.

Investors have since pulled more than $8 billion from that fund, which charges a substantially higher fee than its competitors. Grayscale’s 1.5% annual fee would generate about $400 million in annual revenue for the asset manager if the fund’s average assets remained around current levels.

BlackRock is charging 0.25% after a promotional period ends, and most of the smaller asset managers are charging even less.

To be sure, not all asset managers consider the products appropriate for individual investors based on bitcoin’s boom-and-bust history. Vanguard, for one, has said it has no plans to offer a bitcoin ETF and won’t offer crypto-related products on its brokerage platform. The asset-management giant called bitcoin “more of a speculation than an investment" in a recent blog post.

Registered investment advisers, who are hugely influential in directing capital to ETFs, have limited access to the bitcoin funds for now. The wealth-management platforms at Morgan Stanley, Merrill Lynch, UBS and Wells Fargo offer the funds on an unsolicited basis—advisers can’t actively pitch them to clients but can buy them for a client who asks.

If that changes, analysts expect more inflows.

“Adviser platforms have stayed out of the asset class because they didn’t have an SEC regulated product," said Aniket Ullal, head of ETF data and analytics at CFRA Research. “Now that could change, and we would expect increased demand."

Some of the new bitcoin funds are going head-to-head with industry heavyweights from other asset classes when it comes to taking in new money. BlackRock’s bitcoin fund brought in the third most money of any U.S. exchange-traded fund in February, narrowly edging out its largest S&P 500 ETF for flows. Fidelity’s bitcoin fund was No. 8. (February’s most popular funds were Vanguard’s S&P 500 fund and its information-technology fund.)

For now, there is a dearth of data on who is actually buying the funds. Wall Street will know more after big investors report their fund holdings in quarterly disclosures. Trading activity, however, has accelerated lately. About $8 billion of shares changed hands Wednesday, the biggest day yet, according to Bloomberg Intelligence.

“The speed at which investors have adopted these has been a surprise. It’s a very unusual situation," said Ullal, who said it normally takes much longer for ETFs to gather assets as they wait for different adviser platforms to list them.

—Vicky Ge Huang contributed to this article.

Write to
 Jack Pitcher at jack.pitcher@wsj.com

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