Spot Bitcoin ETFs remove cryptocurrency’s long-standing barrier to entry by putting Bitcoin into brokerage and advisory accounts that are already used for stocks and bonds. Two and a half years later, panelists at CoinDesk’s Miami Consensus Conference agreed that this part has worked. However, they said custody concentration, limited advisor numbers and back-office pipeline issues remain unresolved.
Christopher Russell, head of strategic planning and analysis at Calamos Investments, put the victory into perspective. “ETFs solve a big problem, which is access,” he said. About a dozen spot Bitcoin ETFs in the United States currently hold about $107 billion in combined assets, of which about $20 billion is in institutional hedge funds, $12.5 billion is allocated by registered investment advisers, and 60% is held in direct retail accounts.
Russell said the $12.5 billion allocated to advisors “looks like a big number, but it’s actually a very small number” out of $146 trillion in assets under management. He points to what he calls the 1% problem: “They can take a 1% position in an asset with 50-60 volatility, but they don’t want to spend 50% of their client meetings explaining why the 1% position is down 50%.”
CoinShares CEO and co-founder Jean-Marie Mognetti pressed on the structure. “Currently they all use one custodian, which is Coinbase, which creates a huge concentration risk in the market,” he said. “From a protection and diversification perspective, it’s zero. If you join any hedge fund, you’re going to want to find some prime brokers to diversify your risk.”
Mognetti’s warning was aimed at a market that is no longer unified by a single custody, but Coinbase remains a core part of ETF infrastructure. Fidelity’s FBTC uses Fidelity Digital Assets, VanEck’s HODL launched in partnership with Gemini and later added Coinbase, BlackRock’s IBIT built on Coinbase by adding Anchorage Digital Bank, and Morgan Stanley’s proposed Bitcoin ETF named Coinbase Custody and BNY as Bitcoin custodians.
Aaron Dimitri, general counsel for digital assets at Flow Traders, said ETFs have shifted Bitcoin from pure buy-and-hold to broader portfolio construction. “You don’t just buy and hold an asset and hope it appreciates in value over time,” he said. “You can build income products, instruments with different structures.” Dimitri said that for institutions, ETFs do not eliminate the volatility of Bitcoin, but they make the exposure easier to package and manage. “If you’re going to ride a roller coaster, you might as well make sure you lock your belt before you ride,” he said.
Simeon Hyman, global investment strategist at ProShares, resists treating volatility as a problem to be engineered. “Volatility is a feature, not a bug,” he said, noting that the prices of Bitcoin and Ethereum have both increased by 20% since the outbreak of the war with Iran. If an asset is volatile but not strongly correlated with stocks and bonds, “you put in a little bit of it and you’re going to improve the Sharpe ratio efficiency,” Hyman said. “But you have to be prepared to tell the story.” He also believes that futures-based products still have a place: ProShares’ BITO launched in October 2021 and holds about $2 billion in assets, but trading volume still accounts for 35% of the daily trading volume of BlackRock’s dominant spot product IBIT.
This discussion takes place against the backdrop of volatile demand. Strategy, the largest corporate Bitcoin holder with 818,334 Bitcoins, this week reported a first-quarter net loss of approximately $12.5 billion. The company said it may sell some bitcoin to help meet its dividend obligations, CoinDesk reported. Strategic accumulation is widely regarded as one of the pillars of structural demand in the post-ETF era.
When asked about a five-year price target, Russell predicted that Bitcoin would hit $1 million in five years, “but it won’t be a straight line.”