BITCOIN ETPs: FROM NICHE TO MAINSTREAM INVESTORS

The launch of spot bitcoin ETPs in the U.S. has proven to be a scalable bridge from traditional finance into bitcoin, helping mainstream investors gain exposure to the digital asset. This is quite an evolution from bitcoin’s beginnings as a niche technology. What changed in bitcoin and the traditional finance worlds to enable bitcoin’s inclusion in the ETP wrapper?

Bitcoin, the world’s leading cryptoasset, has been on a journey since its launch since 2009, rising in terms of use cases, and market value. Bitcoin is the most widely adopted digital asset, holding 56% of the $2.2 trillion market.¹

Since its launch, several factors have driven bitcoin adoption, including its potential to reimagine money for a global audience, even while it has exhibited volatility.

Among factors increasing adoption:

• Bitcoin is able to transact across jurisdictions, creating a potential “global monetary alternative” that allows assets to move frictionlessly at low cost and in near real-time across borders.
• Bitcoin has a fixed supply of 21 million units in its code.² Bitcoin is also decentralized and not subject to inflation.
• Bitcoin is available to anyone with a mobile phone and an internet connection, meaning it can help more people to participate in the global financial system.

In our view, three significant shifts have taken place to create the conditions to enable mainstream investors to gain exposure to bitcoin through ETPs.

(1) Global forces accelerate investor interest

As the world changes, particularly in the post-COVID-19 era, several factors have helped elevate bitcoin’s appeal, including: the rise in global inflation, geopolitical fragmentation, and banking and fiscal concerns. The future of finance is changing how households and companies use cash, borrow, transact, and seek returns. The growth of younger populations and the middle class means more people are used to living their lives virtually, which makes bitcoin appealing.

(2) Development of ecosystem infrastructure

There has been significant investment in crypto, and digital assets more broadly, along with an inflow of human capital. Bitcoin trading infrastructure has improved significantly to better meet the needs of institutional players. The funding and infrastructure improvements have helped bolster custody and transparency — critical infrastructure given the unique security challenges associated with digitally native bearer assets.

(3) Regulatory evolution

Policymakers have been assessing their existing financial regulatory frameworks to determine whether they provide adequate oversight of digital assets to ensure robust market participant protections while also allowing for growth and development of the asset class. This assessment, which has gained momentum in recent years, has led some jurisdictions to develop new or modified regulatory frameworks for digital assets to address the unique way the assets are issued, custodied, and traded.

We believe that for many investors, the ETP could represent the preferred holding vehicle for bitcoin, due to the wrapper's key attributes:

Access

ETPs provide investors efficient access in one standard wrapper to all kind of markets, asset classes, and regions. Spot bitcoin ETPs can help to reduce the complexities and operational burdens involved in owning bitcoin outright. ETPs also mean more types of accounts can hold the investment, from individual retirement brokerages to large institutional accounts. And investors can see these holdings in their portfolios so they can view ETPs asset allocations and risk holistically.

Transparency & Liquidity

ETPs, over time, have historically improved markets by increasing price transparency to the underlying asset classes and adding a new avenue of liquidity through the trading of ETPs on traditional exchanges.

Bitcoin’s journey may be just beginning. Uniquely amongst cryptoassets, the infrastructure and investor recognition around bitcoin is now in place to support bitcoin on a broader scale as major forces boost adoption.

Although the exact path bitcoin takes is unknown, we believe this enhanced exposure for investors, catalyzed by the convenience and utility of ETPs, may further boost bitcoin's adoption as a payment technology by a wider investing audience.