Bitcoin has come back from its crypto winter lows. It is trading above its previous 2021 highs. A big factor driving that comeback has been the long-awaited introduction of spot Bitcoin ETFs. A main selling point for these investment vehicles has been that they allow folks to trade and invest in Bitcoin just like they do stocks and without needing a crypto wallet or worrying about their crypto exchange being hacked. That being the case, has the wave of investment in these vehicles been from mom and pop investors who like not having to worry about the fuss and bother of dealing with the blockchain? Who is buying Bitcoin ETFs?
Same Bitcoin Story and a Similar Bitcoin Cast of Characters
We are thinking back over the rise of crypto and the problems that came to light during crypto winter. There was a constant drumbeat of propaganda about how crypto in general and Bitcoin in particular was a way for the average person to invest and get rich. However, it turns out that the market was not being driven by average traders and investors but rather by the Bitcoin and crypto whales or rather folks with huge stakes in crypto assets. There seemed to be the potential for some of that to change when spot Bitcoin ETFs became available. However, according to an article in Bloomberg, the folks buying Bitcoin ETFs are the big investors much more so than the average mom and pop.
$12 Billion Invested in Spot Bitcoin ETFs
Since the first of 2024 nearly $12 billion has gone into spot Bitcoin ETFs. The cast of characters includes the State of Wisconsin Investment Board to the tune of $100 million. Much larger are investments by Bracebridge Capital, an allegedly somewhat secretive hedge fund based in Boston for more than $400 million. The Bank of Montreal and investment firms in Hong Kong and Australia hold similarly large stakes in this investment niche. Apparently the government of the country of El Salvador is all in on this investment niche with $350 million in holdings. The fact that lots of big investors are buying Bitcoin spot ETFs does not automatically make it a bad deal for the average investor. In fact, an old investment adage is to follow the money and invest where the traditional market winners are investing. Nevertheless, it would be wise for the average investor to ask themself if the goals and risk tolerance of a large hedge fund are aligned with those of someone who wants to put away a bit for retirement and be able to sleep well at night without worrying about a repeat of crypto winter.
Do Bitcoin ETFs Make Bitcoin Investing Safer?
One of the attractive features of there being a big chunk of Bitcoin tied up in ETFs is that it could conceivably stabilize this area of investment. We have written about the risks of trading Bitcoin and especially the problems with Bitcoin wash trading. Since spot Bitcoin ETFs trade on stock exchanges the rampant wash trading seen in crypto exchanges is not possible for this section of the market. That is not to say that the fund managers who are holding actual Bitcoin cannot engage in this practice as they, in fact, need to buy and sell Bitcoin to balance out their funds. However, an exchange traded fund will generally only buy and sell to the extent that their customers buy or sell shares in the ETF and their customers cannot legally wash trade.