Traditionally, many institutional investors have shied away from cryptocurrencies, deeming them too risky, volatile, or unregulated compared to exchange-traded securities. But that could all change if the US Securities and Exchange Commission (SEC) starts letting Exchange-Traded Funds (ETFs) hold Bitcoin directly.
If it lives up to Bitcoiners’ expectations, the advent of crypto ETFs in the US will open the floodgates on a tidal wave of pent-up institutional demand and send the token’s price skyrocketing. But how much of an appetite for BTC do the world’s largest investors really have?
To estimate the size of the demand for publicly traded Bitcoin funds, it is worth considering the precedent set by existing investment options that track the price of BTC.
After all, with the SEC yet to approve a single spot Bitcoin ETF, alternative investment vehicles have emerged as an important stopgap for investors who want exposure to BTC but don’t want to hold it directly.
The most well-known of these, the Grayscale Bitcoin Trust, currently holds BTC worth over $21B. However, Bitcoin futures ETFs might be a better comparison when gauging demand for spot Bitcoin funds.
When ProShares’ Bitcoin Strategy ETF launched in 2021, it raised over a billion dollars in just two days. Now, with some of the world’s largest asset managers preparing to debut their own Bitcoin investment options, that feat could be repeated 9 times over.
Yet, even $18B represents just a small fraction of the American market for managed assets.
According to research by Galaxy, the market Bitcoin ETFs could address is worth $48.3 trillion. And that’s a conservative estimate that doesn’t take into account potential demand from outside traditional US wealth management channels.
Modeling a scenario in which 10% of institutional investors allocate on average 1% of their capital to the new Bitcoin ETFs, Galaxy estimates that they could swell to $14.4B after a year. After 3 years, the firm forecasts the funds will have $38.6B in assets under management.
Looking at the bigger picture, the addressable market for Bitcoin investment products could extend even further.
Considering the $453 trillion global investment market, Galaxy estimates potential new inflows to Bitcoin investment products of between $125B and $450B over an extended period.