As Bitcoin products launch, what does the history say about the first ETFs?

Please send your tips or feedback to isabel.wang@marketwatch.com or christine.idzelis@marketwatch.com. You can also follow me on @Isabelxwang And find Christine @CIdzelis.

Click here to sign up for the weekly ETF Wrap.

First-time ETF launches typically generate a lot of interest in U.S. financial markets, at least on the first trading day.

see: Spot Bitcoin ​​ETF ticker symbol is displayed in real time. Here’s what investors are looking for following SEC approval.

A group of 11 exchange traded funds that track the current price of Bitcoin BTCUSD.
-5.93%
It began trading on Thursday after receiving approval from the Securities and Exchange Commission on Wednesday after months of discussions with top asset managers such as BlackRock, Ark Invest, Invesco and Fidelity.

As of 4:20 p.m. in New York on Thursday, more than $4.6 billion worth of shares had been traded between 11 spot Bitcoin ETFs. Grayscale Bitcoin Trust GBTC and iShares Bitcoin Trust IBIT had more than $2.3 billion and $1 billion worth of shares traded, respectively, during the same period, according to FactSet data.

However, some funds have experienced significant price fluctuations. GBTC rose 0.5% after swinging between gains and losses in midday trading, IBIT fell 4.7% and ARK 21Shares Bitcoin ETF ARKB fell 6.5%, FactSet data showed.

As ETF investors monitor what the approval of a spot Bitcoin ETF could mean for the cryptocurrency market and other investments, comparisons are being made to the approval of the SPDR Gold Shares ETF GLD, the first spot gold ETF in 2004. Investors can gain exposure to the gold market and fuel the rise in gold prices over the past two decades.

gold price GC00,
+1.46%
In the 20 years since the ETF was launched on November 18, 2004, it has risen 356%, making it the first gold-backed ETF to be listed on the New York Stock Exchange. GLD recorded net inflows of $468.6 million on its first trading day, according to FactSet data. The fund attracted more than $6.5 billion in inflows in its first two years, according to FactSet data.

However, there are significant differences between gold and Bitcoin-related ETFs, even beyond their exposure to completely different assets. ETFs linked to cryptocurrencies have “an ongoing stream of tension surrounding (Bitcoin’s) regulation,” said Shelby McFaddin, senior analyst at Motley Fool Asset Management.

Approval of a spot Bitcoin ETF does not change regulatory uncertainty for the cryptocurrency industry or Bitcoin assets, McFaddin said in a phone interview with MarketWatch.

That’s why the ETF’s ability to hold up after launch, or how quickly it falls, will likely depend on “the different types of volatility that are unique to Bitcoin,” the analyst said.

see: Why the launch of the Bitcoin ETF could be bad news for cryptocurrency stocks and futures ETFs

The introduction of ProShares Bitcoin Strategy ETF BITO, the first Bitcoin-linked ETF in the United States, can also be a good comparison.

BITO raised a total of more than $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, raised more than $2 billion in its first two years of existence. , according to Cameron Brandt, head of research at EPFR.

BITO’s launch comes as Bitcoin hit a new record of around $69,000 in November 2021. However, 12 months later, the collapse of the FTX exchange dealt a major blow to the cryptocurrency, sending Bitcoin prices falling even further below. November 2022 $16,000. As a result, BITO fell 66.7% in its first two years of trading, according to data compiled by EPFR.

When new investment categories hit the market, it’s always difficult for investors to gauge the appropriate asset allocation in their portfolios, said Jeff Schwartz, president of Markov Processes International, a fund research and investment analysis firm.

“When you talk about something new, when you talk about cryptocurrency ETFs, there is very little data available and very little understanding of the underlying assets,” Schwarz said, adding, “These characteristics make them difficult to predict.” How those assets might perform in a larger portfolio. “Allocators have little choice but to significantly limit allocations because there is no quantitative rationale or history to justify greater exposure.”

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

Schwartz said he would wait “until the smoke clears next month” to better gauge the debut of the spot Bitcoin ETF.

“I expect spot Bitcoin ETFs to play a role (in the portfolio), but I can’t imagine there will be a larger allocation than what we’ve seen in commodities. I just imagine it’s a very limited allocation.”

As usual, let’s take a look at the best- and worst-performing ETFs from last week through Wednesday, according to FactSet data.

good…

… And the bad thing

New ETF

• San Francisco-based Matthews Asia on Thursday launched two new active ETFs focused on small-cap companies with innovative and entrepreneurial business models: Matthews Emerging Markets Discovery Active ETF MEMS and Matthews China Discovery Active ETF MCHS.

Weekly ETF Reading