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Purveyors of Exchange-Traded Funds Find Creative Ways to Tap into Crypto Craze
The year 2024 was marked by a significant surge in the popularity of cryptocurrencies, with Bitcoin reaching an all-time high above $100,000. This newfound interest has not gone unnoticed by exchange-traded fund (ETF) providers, who are now finding innovative ways to tap into this trend.
According to recent filings with the US Securities and Exchange Commission (SEC), several new ETFs are in the pipeline for 2025. These proposed products aim to provide investors with exposure to various aspects of the cryptocurrency market, including Bitcoin-denominated investments, convertible bonds issued by companies to buy Bitcoin, and inverse and leveraged Solana funds.
"This is the continued evolution of launches to incorporate crypto strategies into ETFs," said Athanasios Psarofagis, a Bloomberg Intelligence analyst. "We'll see a lot of these in 2025. It's the hot thing — issuers love to strike when the theme is hot. We'll see crypto everything."
The filings, if approved, would bring about more than a dozen new crypto-centric funds to the space in 2025, just a year after the inception of the first-ever US Bitcoin ETFs. This rapid expansion reflects the growing demand for investment products that allow individuals to gain exposure to cryptocurrencies.
Crypto Market Sees Sustained Growth
The past year has been remarkable for the cryptocurrency market, with Bitcoin experiencing a significant surge in value. The world's largest digital asset reached an all-time high above $100,000 in 2024, fueled by a combination of factors, including the incoming presidency of Donald Trump and the increasing adoption of cryptocurrencies.
Trump's stance on regulation was seen as a positive development for the industry, with many market-watchers predicting that a looser regulatory environment would lead to further growth. The optimism surrounding his election helped push annual inflows for the biggest Bitcoin ETF above $37 billion, making it one of the top-performing funds of 2024.
Investors Flock to Crypto-Related Funds
The growing interest in cryptocurrencies has not only drawn investors but also companies looking to capitalize on this trend. Michael Saylor, a prominent Bitcoin fan and MicroStrategy Inc. co-founder, took advantage of surging crypto prices by doubling down on his tactic of purchasing the largest token for the company's reserves.
MicroStrategy has been using a mix of new equity and sales of convertible bonds to help finance its buying spree. Other companies have similar plans, including those that aim to invest in derivatives such as swaps and options to get exposure to convertible securities issued by companies with similar investment strategies.
New ETFs Offer Innovative Exposure
The proposed ETFs, if approved, would offer investors a range of innovative products to tap into the cryptocurrency market. For example, the REX ETF intends to invest a majority of its assets in convertible bonds issued by firms that hold Bitcoin. Meanwhile, Strive is proposing to launch a fund that invests in derivatives such as swaps and options to get exposure to convertible securities issued by MicroStrategy or other companies with similar investment strategies.
"It is rare that a new asset class comes around for the investing masses, and that's what crypto is now — and Wall Street is always great at creating supply when there is demand," said Todd Sohn, an ETF strategist at Strategas. "So this is the evolution of the crypto ETF spectrum: futures-based, spot, thematic, and now convertibles, both hyper specific for MicroStrategy and whoever else gets involved in a similar capacity."
Conclusion
The growing interest in cryptocurrencies has led to a surge in demand for investment products that allow individuals to gain exposure to these digital assets. The proposed ETFs, if approved, would bring about more than a dozen new crypto-centric funds to the space in 2025, offering investors a range of innovative products to tap into this trend.
As the cryptocurrency market continues to evolve, it will be interesting to see how issuers respond to changing investor preferences and regulatory developments. One thing is certain, however: the crypto craze shows no signs of slowing down anytime soon.