VettaFi Financial Futurist Dave Nadig joins Yahoo Finance to discuss the current landscape of spot bitcoin ETFs and what investors should consider when investing in them.
"If you're looking long-term to make an allocation, I hear this from advisers all the time — I want to put in 2, 3, 4% allocation, part of my liquid alts or real assets portfolio — the Bitwise product (BITB), it's the lowest long-term price in the market right now at 20 basis points," Nadig explains. "Bitwise has spent a lot of time courting institutional and adviser investors. Those are folks that are really making those big long-term decisions. They have done some of the biggest and best work on all the issues the SEC [Securities and Exchange Commission] had."
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AKIKO FUJITA: Well, this is trading day number 4 for Bitcoin ETFs. A number of ETFs from Ark, Grayscale, and iShares trading lower today. Over the last three days, we've seen about $803 million in net outflows or net flows into these products. That includes over $1 billion in outflows from Grayscale's more costly ETF, ticker GBTC. That's all according to VettaFi.
For more, let's bring in Dave Nadig, VettaFi Financial Futurist for ETF report brought to you by Invesco QQQ. David, feels like these Bitcoin ETFs have been trading for much longer, given how much we've talked about it. Give me a sense of your view on where the inflows and outflows have been roughly one week into this.
DAVE NADIG: It's about what we predicted. We all expected there to be significant outflows from GBTC. It's the most expensive by far at 1.5%. And so we expected some of that money to flow out, but not all of it. The $20-some odd billion that's still sitting there, some of that's trapped with capital gains, some of it's perfectly happy to be with Grayscale, and has been with Grayscale for a long time.
And a lot of that money inevitably has flowed into some of these new competitors. The three on screen, IBIT, FBTC, and BITB from Bitwise, they've been the big recipients of that net flow from GBTC sellers into these new spot Bitcoin ETFs. Overall, about a billion coming into the complex is about what we sort of predicted for a first week flow.
What's really surprised us has been the volumes. We've had $10 billion trade hands in these products already in just three trading days. That puts these funds already at the top of the leaderboard as some of the most liquid ETFs in the market. It just goes to show if you give people what they want, they're going to trade it.
RACHELLE AKUFFO: So Dave, with that in mind, if you're a buy and hold investor versus someone who's a more active trader, how should you be stacking these up against each other so that you can pick out the right mix for your portfolio?
DAVE NADIG: If you're looking long term to make an allocation-- and I hear this from advisors all the time. I want to put in a 2%, 3%, 4% allocation, part of my liquid alts or my real assets portfolio. The Bitwise product, BITB, it's the lowest long-term price in the market right now at 20 basis points.
Bitwise has spent a lot of time courting institutional and advisor investors. Those are folks that are really making those big long-term decisions. They've done some of the biggest and best work on all of the issues the SEC had. So along with Grayscale, I give Bitwise a lot of credit for getting us over the starting line.
And that, I think, is going to be where you see the long-term advisor money flow. The shorter term trading money, I suspect, is going to be either in GBTC, where it's been for a while, or in that iShares product. IBIT's volumes have been phenomenal. And I suspect those will be the first options we see trading as well.
AKIKO FUJITA: And Dave, there's certainly a lot of investors out there that are just dipping their toes into this space through ETFs. When you consider equities ETF versus Bitcoin-- I mean, what's the exposure you are telling clients they should have?
DAVE NADIG: Well, so again, if you're going to play in spot Bitcoin, the ETF is a phenomenal way to do it. It's actually-- right now, a lot of these funds have no expense ratios whatsoever. So it's just unquestionably the cheapest way to get Bitcoin exposure. Cheaper than going on chain and buying it the old fashioned way in the crypto ecosystem.
If you're thinking about crypto equities, you have to recognize, this is a little bit like thinking about gold miners versus gold itself. Correlated, but not 100% connected. I think most folks are probably looking to go into Bitcoin itself.
I would actually expect to see some money that's in those miners ETFs flow out into some of these spot ETFs, money that's been in the ETF ecosystem that's really wanted to play ball in crypto. So I think that's really what we're going to start seeing.
RACHELLE AKUFFO: So Dave, we know a lot of this institutional interest got investors in. What is going to keep them in? Because they keep waiting for this rush, as you look at some of the numbers that get thrown out there about how high this could go. But give us a reality check here.
DAVE NADIG: Well, there are a lot of things that are positive for Bitcoin's prices. Obviously, the launch of the ETFs opens up a huge demand market, right? Folks, can now get a little bit of Bitcoin exposure in their 401(K) brokerage window, for instance. So that's a net positive on demand.
And on the supply side, in April, we do have the halving, right? The way that crypto is mined will change the way Bitcoin is mined will change-- that will make far less Bitcoin come onto the market. So that combination of increased demand and decreased supply-- you know, macroeconomics 101 should suggest those prices should go up.
But I do think it's important to point out that if you're playing with Bitcoin in the ETF ecosystem, you're not really participating in crypto. It's not quite the same as having stablecoins and staking assets on Ethereum. There's a whole ecosystem there that's still vibrant and where incredible innovation is happening. The Bitcoin ETFs are going to be on the side and may ride that price difference, but they're not really participating in that ecosystem.
RACHELLE AKUFFO: And something interesting that you bring up in your notes, the options ecosystem. You say it's yet to emerge. Break that down as to what that will look like and how people should look at investing there.
DAVE NADIG: Sure. So probably, the biggest sort of traditional options trading in the crypto space right now are on BITO, the ProShares futures-based Bitcoin fund. That had options launch in 2021 within a few days of a trading because of its structure.
These spot ETFs are a little bit different. They're going to have to go through what's called a 19b-4 process. The exchanges have to file new paperwork to allow them to have options written against them. I suspect that will take something on the order of a month. And once that opens up, I think we'll see volumes really explode.
Once people start trading zero data exploration options on Bitcoin, I suspect you're going to see this whole ecosystem expand significantly. It doesn't necessarily mean that all of the prices go up, right? Because one of the things you can do is buy puts. You can get some protection on your Bitcoin exposure.
I suspect we're going to see a rash of products that marry those two things together, generating income from your Bitcoin exposure, buffering your downside of your Bitcoin exposure. All of those things we've seen in traditional equities over the last couple of years. Huge money gatherers, particularly in the equity space. We'll see it in Bitcoin within a few months.
