ETF Demand for Crypto Might Be Overestimated, and Here's Why According to Bloomberg ETF Analyst

Bloomberg ETF analyst Eric Balchunas, in his latest tweet, discussed the possible overestimation of crypto ETFs in the cryptocurrency community. This is based on the contribution that exchange-traded funds can potentially bring to the industry after being approved by the SEC.

According to data provided by Balchunas, current Bitcoin ETF futures bring only $4 billion in the first 12 months, which is only 5% of the total number of assets under management by crypto funds. While physically backed ETFs would attract more investors, analysts expect futures funds to lose the majority of their participants.

THAT SAID, the crypto crowd may be overestimating the demand for these ETFs. It's a big step no doubt but we see only $4b in first 12mo (and some think that's too high!) but that's just 5% of crypto fund aum, 3% of bitcoin futures, and 1% of bitcoin mkt cap and 1% of all ETF flow pic.twitter.com/1fALaph1TF

— Eric Balchunas (@EricBalchunas) October 12, 2021

In analogy with Canada, Balchunas expects cryptocurrency funds that are tied to Bitcoin futures, rather than underlying assets, to lose the majority of funds once the physically backed ETF launches. Investors tend to use funds tied to actual assets rather than derivatives.

The main difference between futures-backed and physically backed ETFs is that the latter actually has underlying assets. This means that by buying into physically-backed ETFs, investors actually buy into assets that are directly tied to the asset that removes tracking and counterparty risks.

While Bitcoin futures ETFs can still be a great addition to an investor's portfolio, they have numerous drawbacks that push some investors away. According to a Bloomberg analyst, he expects "hundreds of millions" to be poured into the market once the first Bitcoin ETF gets approved. At the same time, investors should keep in mind that while flash-funding spikes can fuel Bitcoin's potential price increase, it would still be a small part of an already developing industry.