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The U.S. crypto exchange-traded fund (ETF) market has experienced tremendous growth in 2024, fueled by bitcoin and Ethereum ETFs. As of August 2024, the total market capitalization for Spot and Futures Bitcoin ETFs exceeded $78 billion, and $7.81 billion for Ethereum ETFs according to Blockworks’ ETF tracker.
The 11 spot bitcoin ETFs approved early this year reached $30 billion in trading volume in the last month alone, highlighting the increasing demand for safe crypto exposure from retail investors.
Upstream ETF Tracker September 18, 2024.
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Following the launch of spot bitcoin and Ethereum ETFs, the U.S. captured 83.3 percent of the global market, overtaking Canada, which previously held a 46.3 percent market share, according to data from CoinGecko.
This shift points to the U.S. market’s growing influence in the cryptocurrency ETF space, as the SEC approvals have fueled notable investor interest and driven adoption.
While U.S. investors are benefiting from this surge, retail investors outside the U.S. face many barriers accessing crypto ETFs, which is limiting the global adoption of crypto through safer regulated channels.
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Crypto ETFs Outside Of The U.S.
Spot bitcoin ETFs are currently available in Canada, Germany, Brazil, Australia, Switzerland, Hong Kong, and several other jurisdictions, however many only cater to institutional clients and exclude retail investors from participating.
European retail investors currently lack access to U.S. spot bitcoin and Ethereum ETFs due to regulations. MiFiD prohibits firms to sell funds to European retail investors which do not provide regulatory documents such as a Key Information Document (KID), which differs to the U.S. disclosure regime.
Countries within Europe like Germany and France have slightly more advanced regulatory frameworks for cryptoassts and offer access to crypto through Exchange Traded Notes (ETNs), unsecured debt securities that track an underlying index of securities and trade on an exchange like a stock.
Europe’s first bitcoin ETF from Jacobi was listed on Euronext Amsterdam in the autumn of 2023 two years after its initial approval in in October 2021. Trading under the ticker BCOIN, it is structured as an Alternative Investment Fund not available to retail investors.
U.K. retail investors are also barred from accessing European-listed crypto ETNs. In 2021 the FCA banned the sale of ETNs containing unregulated transferable cryptoassets. The FCA has stipulated that these products are exclusively available to professional investors, such as investment firms and credit institutions, leaving retail investors without access.
It should be noted that the U.S. spot crypto ETFs are actually exchange traded products (ETPs) and not ETFs per se. ETPs, like ETNs, use an index to track the investment in the underlying physical cryptoasset.
Global Digital Finance (GDF), the global digital assets industry association, surveyed major finance firms in early 2024 in the US, Asia, Europe and the Middle East responsible for more than $221 billion assets under management. The study found 93 percent were handling bitcoin with ETFs a major driver.
Madeleine Boys, GDF director of programs and innovation, said, “The list of U.S. 13F filings disclosing institutional investments in U.S. crypto ETFs reveals a significant volume of investment coming from non-retail segments, not yet witnessed in Europe.”
Despite cryptocurrency being banned in mainland China, Hong Kong approved its first spot bitcoin ETFs in April with six spot bitcoin and ether ETFs from China Asset Management, Harvest Global, Bosera, and HashKey. The ETFs are the first in Asia to offer retail investors the ability to trade the cryptocurrencies at spot prices. In Hong Kong, crypto futures ETFs are available but are restricted to accredited investors.
Emerging Global Crypto ETF Investments
The limitations and hurdles including regulatory uncertainty across jurisdictions, account minimums, and limited market hours, may appears to be limiting participation for retail investors to access crypto ETFs across international markets.
Direct exposure to bitcoin and Ethereum through crypto ETFs is still in its infancy so it remains to be seen whether other countries will gain crypto ETF market share relative to the U.S. Many jurisdictions will seek to follow the U.S. regulatory outcomes, where there a perceived level of security and legitimacy granted to the crypto industry with U.S. ETF approvals.
The U.S.’s strong market entry may also suggest that other regions are struggling to attract investor interest. Global market fragmentation and regulatory uncertainty with respect to crypto, especially cross-borders, impacts international retail investors at a time when technology is making it easier than ever to move towards global interconnected markets.
Alternative trading avenues for investors outside of the U.S. to access crypto assets include brokers such as eToro, Interactive Brokers, and Revolut, but these are windows into exchange traded assets. For example, all U.S. ETF positions opened by clients of eToro (Europe) Ltd and eToro (UK) Ltd who are residents of the EEA or the UK are only available as CFDs. Retail traders can’t access U.S. ETFs in a streamlined manner.
Brian Collins, CEO of Horizon and Co-Creator of Upstream says, “The current regulatory landscape falls short in meeting the growing demand from retail investors for access to digital assets. The technology to provide safe and secure access to crypto ETFs already exists, and we have made it our mission to bridge that gap and empower investors worldwide.”
Upstream, a Seychelles regulated platform, allows investors to buy and sell stocks, options, warrants, and collectibles from U.S. and international companies on a single global trading app. It is seeking to attract crypto ETF funds to its platform to fill the growing gap for investor demand outside of the U.S. to access crypto ETFs.
Go Physical, Go Synthetic, Or Go Home
Crypto ETFs, whether ETPs or ETNs, hold physical (or in the case of bitcoin and Ethereum, digital) cryptoassets in the underlying vehicle, just as ETFs hold physical (or dematerialized, or digital) securities such as stocks and bonds.
With the recent approval of options for crypto ETFs in the U.S. by the SEC, expect a greater number of synthetic crypto funds and indexed products to hit the market in 2025. In synthetic ETFs, the price moves in tandem with the derivative instrument’s price rather than the sport price but converges on the spot price as the option settlement date approaches.
In addition, the market is expecting hybrid synthetics soon which enable users to trade a thematic index on their choses exchange or platform that buys, sells and rebalances cryptoassets which are hosted on both non-custodial and custodial solutions.
Digital assets have made serious strides in 2024, meeting investors where they are comfortable to participate in the growing market. Regulatory uncertainty and easy access on a global scale may be limiting traction and overall crypto market participation in some jurisdictions, but solutions are emerging for investors to find the exposure to crypto they wish to take.
Pressures on foreign governments and regulators following the success of U.S. crypto ETF approvals and sensational demand for crypto ETFs in the U.S. may be influence other jurisdictions to rethink more meaningful crypto regulation for retail investors.
In any event, with new and streamlined global venues for retail investors to participate in the growing demand for a variety of spot, derivative, and synthetic crypto funds and indices, the market is set to continue to push retail access to crypto to new heights.
It is an exciting new era for investors, wealth accumulation, and digital assets.