What history says about first-of-a-kind ETFs as bitcoin products debut

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The launch of first-of-a-kind ETFs usually generates a lot of hype in U.S. financial market, at least on the first trading day. 

See: Spot bitcoin ETF ticker symbols are live. Here’s what investors are looking for after SEC approval.

A group of 11 exchange-traded funds that track current prices of bitcoin
BTCUSD,
+0.11%
began trading on Thursday after getting the green light by the Securities and Exchange Commission on Wednesday following months-long talks with top asset managers such as BlackRock, Ark Invest, Invesco and Fidelity. 

Over $4.6 billion worth of shares traded between the 11 spot bitcoin ETFs as of 4:20 p.m. in New York on Thursday. The Grayscale Bitcoin Trust
GBTC
and the iShares Bitcoin Trust IBIT saw over $2.3 billion and over $1 billion worth of shares change hands over the same period, respectively, according to FactSet data.

However, some funds saw big swings in prices. GBTC was up 0.5% after wavering between gains and losses in midday trade, while IBIT was down 4.7% and the ARK 21Shares Bitcoin ETF ARKB finished 6.5% lower, according to FactSet data.

As ETF investors monitor what the approval of spot bitcoin ETFs could mean for crypto markets and other investments, comparisons are being made to the greenlighting of the SPDR Gold Shares ETF
GLD
— the first-ever spot gold ETF — in 2004, which changed the way investors can gain exposure to the gold market and spurred a rally for the price of the yellow metal in the past two decades. 

Gold prices
GC00,
+0.74%
have climbed 356% in the two decades since the ETF launched on Nov. 18, 2004, becoming the first gold-backed ETF to debut on the New York Stock Exchange. GLD took in $468.6 million of net inflows on its first trading day, according to FactSet data. The fund also saw more than $6.5 billion in inflows in its first two years of existence, according to FactSet data. 

However, there are big differences between gold and bitcoin-linked ETFs, even beyond their exposure to completely different assets. ETFs tied to crypto currencies come with “a constant stream of tension around regulation [of bitcoin] as a concept,” said Shelby McFaddin, senior analyst at Motley Fool Asset Management. 

The approval of spot bitcoin ETFs also doesn’t change regulatory uncertainty around the crypto industry or bitcoin assets, McFaddin told MarketWatch in a phone interview.

That’s why the ability of the ETFs to hold up after their launch, or how quickly they might drop, likely hinges on a “different sort of volatility that is almost unique to bitcoin,” the analyst said.

See: Why the debut of bitcoin ETFs could be bad news for crypto stocks, futures ETFs

The introduction of the first U.S.-based bitcoin-linked ETF — the ProShares Bitcoin Strategy ETF
BITO
— also might be a good comparison. 

BITO hauled in a total of over $550 million from investors on its first day of trading on October 19, 2021. The fund, which primarily invests in bitcoin futures contracts instead of the cryptocurrency itself, gathered over $2 billion in its first two years of existence, according to Cameron Brandt, director of research at EPFR. 

BITO’s launch came at a time when bitcoin was marching to a new record high, at around $69,000 in November 2021. However, a significant blow for the cryptocurrency 12 months later, triggered by the collapse of exchange FTX, brought the bitcoin price to well below $16,000 in November 2022. As a result, BITO slumped 66.7% in the first two years of trading, according to data compiled by EPFR.

Jeff Schwartz, president at fund research and investment analytics firm Markov Processes International, said that when a new investment category becomes available on the market, it’s always hard for investors to gauge the proper asset allocation in their portfolios.

“When you’re talking about something new, and in this case, we’re talking about crypto ETFs, there’s little data that’s available, and little understanding of the underlying asset,” Schwartz said, adding that those attributes makes it difficult to forecast how such an asset would perform in a larger portfolio. “Allocators have very little choice but to constrain the allocation heavily, just because they don’t have any quantitative basis or history to justify a larger exposure.” 

The table below summarizes flows and performance data for some of the first and the biggest ETFs in their investment classes on their first trading day, and during their first two years of existence, according to MarketWatch calculations based on FactSet and EPFR data. 

Schwartz said he would wait until “after the smoke has cleared over the next month,” to get a better gauge of the debut of the spot bitcoin ETFs. 

“I’m expecting that spot bitcoin ETFs will have a role [in portfolios], but I can’t imagine having larger allocations than what we saw from commodities — I just imagine it being a deeply constrained allocation.” 

As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good…

…and the bad

New ETFs

• San Francisco-based Matthews Asia Thursday launched two new active ETFs focusing on smaller companies with innovative and entrepreneurial business models, the Matthews Emerging Markets Discovery Active ETF MEMS and the Matthews China Discovery Active ETF MCHS.

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