Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only and should not be relied upon as a basis for investment decisions. Triton may maintain positions in any assets or projects discussed on this website.
TL;DR
Introduction
This week we are revisiting how the first US BTC and ETH spot ETFs have performed in their first year and providing our take on how we expect the likely coming flood of other crypto ETFs to play out.
The Bitcoin Effect
Record smashing. There are no other words to describe how the Bitcoin ETFs have performed in their first year in the market. On January 11, 2024, the SEC approved the launch of 11 spot ETFs from the likes of Fidelity, 21Shares, Bitwise, VanEck, Franklin Templeton, Invesco, and most importantly, Blackrock. Since going live, these products have amassed over 6% of all circulating Bitcoin, amounting to ~$125B at current prices. Blackrock’s IBIT has been the dominant vehicle thus far, accounting for $57B of those inflows. On January 10th, Grayscale held just shy of $30B in its Trust before conversion, and as such, there has been roughly $95B in net new inflows into Wall Street-traded BTC products. In the 54 weeks since going live (at the time of writing), there have been just 15 weeks (28%) that saw net outflows from the ETFs in aggregate.
Source: @Hildobby via Dune; the sizeable inflows to products throughout early 2024 were largely rotations out of Grayscale’s existing BTC Trust product
Where does that stack up historically across all ETFs ever launched? Blackrock’s IBIT alone was the fastest product to ever reach $50B, doing so in just under 8 months and nearly 5 times quicker than the next fastest ETF to break that barrier. At $57B, IBIT is 73% of the way to catching the world’s largest Gold ETF, SSGA’s GLD ETF with $78B. For reference, GLD has been in the market for over 20 years (Nov 2004). This stands to show the remarkable appetite that investors have for accessing spot BTC through traditional wrappers. With CME now offering options trading on IBIT (as of November 2024), the path is increasingly clear for large investors and institutions to be able to take spot positions with adequate risk management tools to be comfortable with portfolio allocations to the asset. Despite this, there are still many major asset managers and wirehouses that do not yet, or are only now just allowing their clients to touch these products (such as Vanguard or Morgan Stanley), and as such, full-blown “institutional” adoption of BTC is still very much a future state, not the present. Clarity around regulations in the US, especially for Bank Holding Companies, will help open the door to more client access here.
Source: Bloomberg’s Eric Balchunas
Why have Bitcoin ETFs been so incredibly successful? Largely because Bitcoin is very much viewed as a differentiated asset with highly unique risk characteristics relative to equities and bonds. It was also the only way investors could get spot crypto exposure when it went live, and given its size, provides exposure to ~60% of crypto’s entire market cap in one coin. Further, the story is dead simple and is the same no matter who you tell it to, anywhere around the world: permissionless, neutral digital store of value with a fixed supply. That is digital gold.
How About ETH?
When you start looking across the spectrum at other digital assets – such as Ethereum and now Solana, Polkadot, Litecoin, XRP, Dogecoin, and the list goes on – while the underlying native assets are similarly internet-native commodities, the entire growth story behind what is driving them is both far more complicated and also far more reliant on venture-funded startups adopting their technology.
Ethereum ETFs, allowing access to the second largest digital asset (~$400B) and most robust ecosystem, went live in July 2024. Over that time, investors have amassed just 3.7M ETH, or $9.5B at current prices. Importantly, much like Bitcoin, Grayscale had a pre-existing ETH Trust that was converted at the time all other ETFs went live, holding 2.5M ETH. That is, there has been just 1.2M ETH worth of net new inflows into Wall Street tradable products. Because of the Grayscale ETHE arb trade unwind and poor price performance of ETH since then, there is essentially the same value in USD held across these products as there was at the time of launch.
Source: @Hildobby via Dune
We covered much of the launch dynamics back in August here, but as a quick recap, the SEC approval and quick launch very much caught investors by surprise. Many advisors were still in the process of underwriting BTC as a potential investment for their clients, despite having a much longer lead time to do so (and are still in the process of doing so). As such, many are still trying to get comfortable with ETH as an asset to recommend. This lack of lead time likely accounts for some degree of the relative underperformance of the ETH ETFs, but not all.
It is likely that the bigger issue here dictating appetite is that the organic demand drivers for ETH the token – separate from people wanting to just buy and store ETH as an investment or speculative position – is that it all comes down to the growth of on-chain protocols and thus the natural demand for Ethereum. For Bitcoin, these actors are one and the same: you hold digital gold because it may provide a differentiated return profile from other assets, and that is the same reason everybody else that holds it does too.
With ETH, ETF investors are wholly separate actors from those acquiring and using ETH to access Ethereum’s blockspace and participate in DeFi. That is a problematic separation of expectations and a reason why ETFs for other commodities such as live cattle and coffee, despite incredible global demand for the underlying, were not nearly as successful as gold. In practice, this means that ETF investors must be comfortable that the organic demand for ETH the asset will on its own provide outsized returns. That is, due to fundamental improvement in Ethereum’s ecosystem and the resultant demand. Readers of this newsletter understand why we think this is such a difficult proposition for investors to get comfortable with (cliff notes summary tweet here if you want a refresher, the 40-page version here).
Understanding Ethereum, its roadmap, and what the 9th Type-1 zkEVM L2 posting via EigenDA and using shared sequencing means for ETH value accrual is not nearly as simple as understanding BTC is digital gold – just hold it. And when advisors do finally dive deep enough to fully understand that story, many likely start to worry that the demand for Ethereum is not going to grow proportionally to the growth in the ecosystem or outpace the growth of competing ecosystems like Solana. Naturally, this muddies the investment case and becomes a significant hurdle to overcome for many investors who are likely already skeptical of crypto’s track record and volatility.
It also means an investor needs to see an even larger growth in underlying organic adoption in order to spur the requisite demand to meet that dilution of value. And that is what investors are focused on – and where the macro environment, rates, funding, and liquidity all come into play for someone looking to buy and hold ETH as an investment, not as a utility token to use in the Ethereum ecosystem. ETH bounced on Trump’s election because investors were not excited about what his policies mean for tokens and on-chain protocols going forward, and thus the future adoption of ETH for accessing Ethereum block space. But that all takes time to happen – likely months, if not years.
In the meantime, the worries about inflation, tariffs, tax policy, trade wars, and impacts of government spending reduction, are all driving risk-on flows, to which venture and most long-tail crypto are uniquely exposed. This naturally flows through to how investors view the outlook for development on top of Ethereum, and thus the future demand for ETH:
Source: CoinGecko; ETH has essentially round-tripped since the election
Okay – why are you telling me this?
There are now numerous other ETF applications in the pipeline, and more are being filed every day (Dogecoin, and Polkadot applications added in the last few days). Many in the industry are excited about this flood of products coming to the market. Though we are happy that this represents further maturation of the industry and better integration into traditional financial markets, we do not hold the same unbridled optimism of many in the industry that these will unlock billions of capital flows into each product. All of that is to say, they are not by default bullish long-term catalysts (there may be short-term market reactions to announcements). They simply provide additional routes through which investors can get exposure to a desired investment. If that underlying investment is not attractive, then the ETFs are not going to see strong flows.
Source: Bloomberg’s James Seyffart
For much the same reasons that ETH ETF flows have largely been muted relative to BTC, we expect the flows into LTC, DOT, and XRP will likely be underwhelming as well. SOL allows for more optimism given the strength of the ecosystem and economic activity it is generating, while having a clearer story around what makes SOL the asset central to that. Its relative price performance and ecosystem growth suggest sophisticated investors (e.g. funds) are more optimistic about the asset than most other ecosystems. The 10%+ that SOL has been yielding through much of 2024 and into 2025 due to growing priority fees generated from block space demand is an attractive proposition for investors and begins to warrant the volatility while providing a quantifiable and tangible way through which they can capture ecosystem upside. If staking is not included, that instantly devalues how investors may view it and would result in reduced flows. Staking in ETFs is not currently allowed by the SEC, and it is unclear if it will approve staking prior to any new ETFs going live, though we are optimistic it will happen at some point in the near future. For reference, ETH yields ~3% and is steadily declining in line with its validator growth, as per its design.
Regardless, our base case is any SOL ETF will similarly not be as successful as BTC. Why? It is hard enough for many to get comfortable with Ethereum, let alone understand and underwrite the differences between Ethereum and Solana and every other smart contract platform with an ETF about to be approved. Further, there is not yet any standardized way with which investors can truly compare these ecosystems and their native assets, a major departure from the standardized and structured principals in traditional industries (this is why crypto-native funds like Triton are uniquely equipped to navigate this space). SOL is also a far smaller asset (just $100B) and has a far less developed (e.g. largely non-existent) futures market.
One should expect a ‘fine’ launch for SOL if and when it happens, but nothing that blows you out of the water like we’ve seen with BTC. However, one can expect exposure to the Solana ecosystem will present an attractive opportunity for ETF buyers if it is able to maintain the trajectory it had throughout 2023 and 2024. It would not be surprising to see a similar magnitude of flows to ETH relative to its market cap early on, but we allow room for relatively more interest given the clearer proposition of the SOL token and how crypto-native institutional capital views it relative to every other chain ecosystem currently.
Conclusion
Source: Bloomberg’s Eric Balchunas; Day 1 volume ranked vs ~600 ETFs launched in 12 months prior to Ethereum ETFs (excluding BTC)
Even with that said, the Ethereum ETF launch was still VERY successful by any traditional ETF metric – a top launch of the year in aggregate. But we caution those who may be expecting these ETFs to be magical unlock catalysts by default. They simply will not be. On the flip side, for all the reasons we mentioned above, we would not be surprised to see an ETF for DOGE perform unexpectedly well. A somewhat sizeable contingent of ‘traditional’ investors has shown an appetite in the past for uniquely speculative investments (think GME, DJT, TSLA, ARKK, etc.).Forr many, the lack of any underlying fundamentals for DOGE ironically puts it closer to BTC (just buy and hold) than ETH or SOL (more tech-like investments dependent on underlying fundamentals). Investors know they are buying vaporware with DOGE, but vaporware that can potentially provide returns an order of magnitude or two above an equity index as proven by the past half-decade of price performance.
Over time, ETFs are net beneficial to the industry broadly and the underlying ecosystems specifically. But as instant rocket ships to a 300% return like BTC? Wouldn’t count on it.
Discover how Bitcoin is revolutionizing transactions and cutting costs
Understanding digital assets: addressing real problems beyond the hype and scams.
