Cryptoverse: A crowd of funds bet on the allure of battered bitcoin

Oct 18 (Reuters) – A growing number of funds are banking on the long-term appeal of bitcoin and ether, a cruel gambit in the depths of a crypto winter.

Unfazed by a collapse in prices over the past 11 months, investment firms have unleashed a flurry of exchange-traded funds, anticipating that elite cryptocurrencies and their underlying technology will ultimately prevail.

Of more than 180 total active crypto exchange-traded products (ETPs) and trust products globally, half have launched since the bitcoin bear market began, Morgan Stanley said in a note published this month. The spread came even as the total value of assets in the market fell by 70% to $24 billion during the period when crypto prices fell.

About 95% of those 180 funds are focused on the top two coins, bitcoin and ether, Morgan Stanley said.

“Obviously when the market is slower, prices are lower, people have lost money, the intensity of appetite decreases,” said Chen Arad, co-founder of crypto risk monitoring firm Solidus Labs. “But it’s not like that in the long run. As a whole, I don’t think anyone gives up.”

The attraction of ETPs is that they provide exposure to digital assets on a regulated exchange, so that private and institutional investors do not have to worry about storing crypto and avoiding hacking and robbery.

In terms of money, cryptocurrency investment products have attracted about $453 million in net inflows this year, with much of that going into bitcoin and investment vehicles that include the major cryptocurrencies, according to a report by digital asset manager Coinshares.

“There is more asset allocation towards baskets that combine the top five or 10 crypto assets by market cap. There is a flight to quality compared to alternative assets in the crypto industry,” said Eliezer Ndinga, director of research at 21shares.

Other major cryptocurrencies include solana, cardano, and ripple.

NOTCH BY NOTCH

Most of the active crypto ETP products are registered outside the US, but Switzerland, Canada, Australia and Brazil continue to run spot crypto offerings.

One reason is that US regulators have rejected several applications for spot bitcoin funds, which mirror the cryptocurrency’s price movements tick-for-tick, citing a number of reasons, including a lack of monitoring-sharing agreements with regulated markets linked to the spot funds’ underlying assets. .

Investors in futures-based funds often have to bear the additional costs of futures rollover when contracts approach settlement, in order to maintain their position.

Bitcoin has lost 17% over the past three months, while the ProShares Bitcoin Strategies ETF, which tracks bitcoin futures, has lost about 21%. The world’s largest bitcoin fund, Grayscale Bitcoin Trust (GBTC.PK), is down 34% at the same time.

The ProShares Bitcoin Strategy ETF has seen assets under management (AUM) shrink to just over $600 million at the end of September, according to Refinitiv Lipper data. Upon its debut a year ago, it raised over $1 billion in a matter of days.

At Grayscale’s Bitcoin Trust, AUM has fallen to $12.2 billion from over $30 billion at the end of 2021, data from the firm showed.

Will Peck, head of digital assets at WisdomTree, whose spot bitcoin ETF was blocked by US watchdogs last week, said he was not surprised by the decision but expressed hope a deal could be reached.

“I think we will eventually get there. But we will be in a holding pattern for the foreseeable future.”

Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Vidya Ranganathan and Pravin Char

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