Something quite remarkable happened in the world of crypto funds last month. It was a quiet shift, perhaps, but one that speaks volumes about where the digital asset market might be heading. For the first time, U.S.-based crypto exchange-traded funds, or ETFs, pulled in more capital than even the mighty Vanguard S&P 500 ETF, ticker VOO.
- Crypto ETFs saw record inflows in July, surpassing even the Vanguard S&P 500 ETF. This indicates a growing interest in crypto exposure through traditional investment vehicles.
- Spot Bitcoin ETFs are the most popular, but the market is expanding to include Ethereum and other digital assets like Solana, Dogecoin, XRP, and Cardano.
- The surge in capital offers a regulated pathway for investors, potentially reshaping the market by bringing in new investors and fostering innovation.
Think about that for a moment. VOO is a titan, the world’s largest exchange-traded fund with hundreds of billions under its wing. Yet, in July, crypto ETFs, as a group, saw a record $12.8 billion flow into their coffers. That’s a pace of about $600 million every single day. It suggests a growing appetite, a serious one, for crypto exposure through traditional investment vehicles.
A Flood of Capital and Shifting Tides
Eric Balchunas, a senior ETF analyst at Bloomberg, highlighted this milestone. He pointed out that this July intake was the best month ever for these funds. It’s a clear signal that institutional and retail investors alike are finding new comfort in accessing digital assets without directly holding them.
The numbers are stark. Vanguard’s S&P 500 ETF, VOO, holds a staggering $632 billion in assets under management (AUM). BlackRock’s spot Bitcoin fund, IBIT, leads the crypto pack with $85 billion in AUM. While IBIT is still far from VOO’s size, the rate of inflow into the crypto space is turning heads.
Spot Bitcoin ETFs are the most popular of these listed crypto funds, both in terms of capital coming in and the total assets they manage. They are the big fish in this particular pond. But the market is expanding beyond just Bitcoin.
We’ve seen spot Ethereum ETFs launch, and they now collectively manage nearly $19 million. BlackRock’s ETHA fund, for instance, holds over $11 billion in AUM. This shows that investors are looking beyond just the largest cryptocurrency.
Just this month, the REX-Osprey Solana ETF went live. And the pipeline for new crypto ETFs is full. Issuers are applying to list funds that track the price of other digital assets, including Dogecoin, XRP, and Cardano. It seems the market is eager to offer a wider menu of options.
This surge of capital into crypto ETFs is a significant development. It offers a regulated, familiar pathway for investors who might otherwise shy away from the complexities of direct crypto ownership. It’s a bridge, if you will, between traditional finance and the digital asset world.
The chart above shows the daily assets under management for spot Bitcoin ETFs. You can see the steady climb, reflecting the growing interest and capital allocation to these funds. It’s a visual representation of the trend Balchunas described.
The Bitcoin Price Puzzle and Old Guard Selling
Now, here’s a curious point. July’s record inflows into crypto ETFs happened at the same time Bitcoin hit a new all-time high. You might expect such a massive influx of capital to push Bitcoin’s price even higher, perhaps dramatically so. But it didn’t quite play out that way.
Balchunas was asked about this online. Why hadn’t the rise in inflows impacted Bitcoin’s price more substantially? His reply offered some interesting insights, and perhaps a gentle jab at some Bitcoin treasury companies. These are firms that have been selling stock or borrowing money to buy Bitcoin.
Balchunas made it clear that ETFs operate differently. “ETFs hold BTC at a 1:1 ratio, there is no lending there is no paper IOUs. ETFs are clean and above board and every dime of AUM is connected to the proportional Bitcoin,” he posted on X. This means every dollar invested in a spot Bitcoin ETF directly corresponds to Bitcoin held by the fund, offering a transparent and direct exposure.
a few points: 1) ETFs hold BTC at a 1:1 ratio, there is no lending there is no paper IOUs. ETFs are clean and above board and every dime of AUM is connected to the proportional Bitcoin.
Zoom out: Bitcoin is up nearly 300%(!) since the infamous BlackRock filing two years ago.
— Eric Balchunas (@EricBalchunas) May 17, 2024
He also reminded everyone to “Zoom out.” Bitcoin, he noted, is up nearly 300% since BlackRock first filed for its ETF two years ago. This puts the recent price action into a broader context. A 300% gain is nothing to scoff at, even if recent inflows haven’t caused another immediate spike.
Balchunas then echoed a statement from Fred Thiel, the CEO of top Bitcoin miner MARA. Thiel had suggested that many large Bitcoin holders have been selling recently, even as the digital asset’s price peaked. This selling pressure could be a reason why the massive ETF inflows didn’t translate into an even bigger price jump.
Who are these sellers? Balchunas offered a theory. “From what I am hearing on here the selling is annoyed OGs who don’t like that Wall Street and [government] has adopted BTC,” he said. “OGs” refers to the “original gangsters” of Bitcoin, early adopters and long-time holders who might view institutional adoption with a degree of skepticism, or even disdain.
U.S. Crypto ETFs took in $12.8b in July, the best month ever, a $600m/day pace, about double average. As a group that's more than any single ETF did, including the Mighty VOO. pic.twitter.com/9V03X07o3C
— Eric Balchunas (@EricBalchunas) May 17, 2024
This idea of “annoyed OGs” selling off their holdings as Wall Street embraces Bitcoin is a fascinating one. It suggests a philosophical divide within the crypto community. Some early adopters might prefer Bitcoin to remain outside the traditional financial system, a truly decentralized and independent asset.
The Evolving Landscape of Digital Assets
The record inflows into crypto ETFs, even with some underlying selling pressure, point to a significant shift. It’s a sign that digital assets are moving further into the mainstream. They are becoming a legitimate part of investment portfolios, accessible through familiar structures.
This trend could reshape the market in several ways. It brings new capital, yes, but it also brings new types of investors. These investors might be less concerned with the ideological purity of decentralization and more interested in diversification and potential returns.
The expansion beyond Bitcoin and Ethereum, with Solana ETFs launching and applications for Dogecoin, XRP, and Cardano funds, shows a broadening of the market’s appeal. It suggests that the appetite for digital asset exposure is not limited to just the largest players.
What does this mean for the future? We are likely to see more products, more innovation, and perhaps even more debate between the old guard and the new institutional players. The market is growing up, in a way, and with growth comes new challenges and new opportunities.
The quiet revolution of crypto ETFs continues. It’s a story of capital flowing, old ideas meeting new structures, and the digital asset market finding its place in the wider financial world. It makes you wonder what other surprises are waiting just around the corner.