Bitcoin ETFs: What to Expect on Day One

Spot bitcoin ETFs were finally approved in the U.S. after a tough decade of trying. The next step: Getting them trading Thursday morning.

Following the Securities and Exchange Commission's green light Wednesday afternoon, the hotly anticipated products will debut on U.S. markets run by the NYSE, Cboe Global Markets and Nasdaq, aided by major trading firms who plan to provide liquidity.

The buying and selling could technically start as early as 4 a.m. ET (09:00 UTC) since that's when U.S. stock exchanges open – not at the famous daily opening ceremonies held 5 ½ hours later.

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The products will let virtually any retail customer gain exposure to bitcoin's [BTC] price using their conventional brokerage apps and accounts, as well as let traditional financial institutions invest without needing to go through crypto exchanges.

These ETFs give investors interested in digital assets more choices, said Cynthia Lo Bessette, head of digital asset management at Fidelity, one of the bitcoin ETF issuers. The latest products are different from the ones approved in 2021 in the U.S., bitcoin futures ETFs, which invest in derivatives, not the digital asset itself.

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"We've long believed a spot-priced exchange traded-product would be an efficient way for investors to gain exposure to bitcoin," she said. "As a firm, we remain committed to meeting the growing demand from investors by providing them with tools that support their choices and facilitate secure access to markets."

Similarly, a spokesperson for Cboe Global Markets said the ETFs would give investors "a transparent and regulated" way to track bitcoin's price. "[The approval] signifies a major step forward in establishing crypto as a tradeable asset class, paving the way for new trading opportunities."

Read more: Bitcoin ETFs Win SEC Approval, Broadening Crypto Access

Liquidity pools

With 11 spot bitcoin ETFs funds being offered – some of which have already lined up billions of dollars of assets going into the launch – liquidity providers and market makers spent the past months preparing for this day, making sure that the bitcoin market is – and stays – efficient with the new wave of interest coming in on Thursday.

Bitcoin's spot market, bitcoin's futures markets and the bitcoin futures ETFs will all aid the spot ETFs' liquidity on day one, said NYSE Head of Exchange Traded Products Douglas Yones. NYSE also has a number of liquidity programs, he said.

"For market makers that are out there – and we've got dozens of market makers that provide liquidity for our ETFs that are going to step in – they've had natural hedges available to them," he said. "We have a very nice price-discovery process that will happen at the New York Stock Exchange overnight all the way into the open, so we expect a pretty dynamic and liquid market tomorrow."

Robert Mitchnick, the head of digital assets at BlackRock, told CoinDesk in an interview that the asset manager would use its partnership with Coinbase. The company integrated Coinbase Prime with its own portfolio management tool, Aladdin, in 2021. While he wouldn't speak to how much BlackRock had lined up in terms of assets under management at launch for its bitcoin ETF, he noted that the company had already disclosed a $10 million seed investment.

"As is public, there was a seed investment in the ETF that was made by BlackRock," he said. "One of the things that's really important to understand is we view this as a long process."

No immediate rush

David Mann, Franklin Templeton's head of ETF products and capital markets, told CoinDesk in an interview that it was difficult to predict just what inflows might look like in the first few days. While he expects "a ton of excitement" on day one, he said there may be a more gradual ramp up in interest and investments than people appreciate.

"It wouldn't shock me if ETF users broadly who are now looking at getting some exposure to bitcoin within the ETF vehicle are going to go through their normal review process to make sure that they're comfortable with the ETF, and that often takes time," he said.

There may be a "pop out of the gate," but investors may take weeks or months to become comfortable with the bitcoin ETF vehicle and verify that it is behaving in a way they would be willing to put money into, he said.

BlackRock's Mitchnick echoed this point, saying it would be a "long journey" after the launch for investors. He pointed to wealth advisers as an example, saying they may be part of the largest investment channel for the ETF. Because they have not yet had much exposure to investment vehicles containing bitcoin, there would be "a journey of education" before they may allocate funds.

"There'll be suitability conversations between advisers and clients," he said. "It's not something that is going to materialize right away out of the gate, and the same thing for institutional investors who hitherto have not really had viable exposure solutions."

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CORRECTION (Jan. 11, 2024, 16:44 UTC): An earlier version of the story stated that BlackRock had $100,000 in seed capital, as opposed to $10 million.