(Bloomberg) - Cathie Wood’s Ark Investment Management LLC is snapping up shares of the firm’s just-launched spot-Bitcoin ETF as competition among the inaugural issuers escalates.
The ARK Next Generation Internet ETF (ticker ARKW) sold off $16 million worth of its position in the futures-backed ProShares Bitcoin ETF (BITO) on Tuesday to make way for a purchase of 365,427 shares of the ARK 21 Shares Bitcoin ETF (ARKB), which now makes up 1% of the ARKW fund, data compiled by Bloomberg show.
A consistent bid from its sister fund could help give ARKB a leg-up in a highly competitive environment for spot-Bitcoin exchange-traded funds. The Securities and Exchange Commission allowed 10 such ETFs to launch at once last week, preventing any one of them from gaining first-mover advantage. That has set up an unusually high-stakes horse race, given that all the funds hold the same underlying asset. Funneling the firm’s own money into an ETF is one way to gain scale quickly — an important criteria for financial advisers and platforms, many of which have minimum-asset thresholds, according to Bloomberg Intelligence.
“Cathie Wood buying ARKB with her other ETFs is a little bit of a cheat code in raising assets and volume, but she’s not the only issuer that can do this and this isn’t the only cheat code available,” Bloomberg Intelligence ETF analyst James Seyffart said. “We could see other issuers put their products in model portfolios or do standard bring-your-own-assets.”
Although some flow data is lagging due to ETF accounting, data available so far show investors have poured an estimated net $803 million into the funds over the last three days, suggesting that even outside of potential seed money from fund issuers, demand is strong for Bitcoin exposure in a physically-backed ETF.
BlackRock’s iShares Bitcoin Trust (IBIT) has taken in the most cash, raking in $710 million. Fidelity’s FBTC has pulled in roughly $524 million. The inflows more than offset the money that’s been drained from the Grayscale Bitcoin Trust (GBTC) since it debuted as an ETF.
As expected by industry analysts, investors have pulled about $1.2 billion from GBTC over the last three trading sessions. The fund has existed in a trust structure since 2013, but last Thursday marked one of the first days every investor in the fund could redeem their shares near net-asset value and take profits.
“Grayscale has dominated the market for regulated Bitcoin investing for over a decade. Now that other issuers have come to market, we are naturally seeing some rotation into these new products,” Zach Pandl, Grayscale’s managing director of research, said on Tuesday in reference to the outflows. “Total net inflows into Bitcoin investment products are what matters for prices, not substitution from one product to another.”
The net inflows come amid hefty trading volume. In the first three days of trading, the ETFs have seen nearly $9.8 billion worth of shares exchange hands. That’s roughly in-line with the three-day traded value of all 500 ETFs that launched in 2023, according to Bloomberg Intelligence.
‘Spaghetti Cannon’
The blockbuster debut of the spot-Bitcoin ETFs has firms rushing to capitalize on the buzz. Grayscale and Roundhill have both filed applications for Bitcoin covered-call ETFs, which would replicate one of the most popular equity ETF strategies of 2023 by using options strategies to generate additional returns.
And while questions remain over the fate of Bitcoin-futures ETFs — VanEck announced Wednesday it’s shuttering its futures-backed product — ProShares is doubling down. The firm filed for leveraged and inverse Bitcoin products this week, which employ derivatives to deliver performance, according to SEC filings.
Should the spot-Bitcoin ETFs continue to generate inflows and interest, it’s inevitable that issuers will attempt to launch crypto ETFs of every stripe, according to the ETF Store’s Nate Geraci.
“The highly successful first few days of spot-Bitcoin ETF trading will only serve to embolden issuers to fire up the spaghetti cannon,” said Geraci, president of the advisory firm. “I expect that we’re going to see every flavor of leveraged, inverse, and options-based spot-Bitcoin ETF strategy. Any time there’s a successful ETF category, issuers will look to build on it by mixing in new ingredients in an attempt to entice investors.”
By Katie Greifeld and Emily Graffeo
With assistance from Isabelle Lee
