The approval of bitcoin spot ETFs in the US theoretically opened-up crypto markets to billions of dollars of fresh capital, but the investment case for the digital assets ‘remains weak’, according to UBS.
The US Securities and Exchange Commission earlier this month gave the green light for the launch of 11 Exchange-Traded Funds tracking the price of bitcoin, with launches from Wall Street giants BlackRock and Fidelity as well as less well-known firms.
It was anticipated to be the immediate trigger of a new era for the world’s biggest cryptocurrency, with new investors lured by plentiful liquidity, low costs and easy access.
But interest has been ‘disappointing’, according to a note from major private bank UBS, with $800million of net inflows to bitcoin funds since 11 January, ‘as investors rotated some assets away from existing higher-cost vehicles into the bitcoin ETFs’.
The US Securities and Exchange Commission earlier this month gave the green light for the launch of 11 ETFs tracking the price of bitcoin
Bitcoin is up almost 80 per cent over the last year, trading at £41,140 at time of publication, with its value spiking and falling back over that time as the market responded to false dawn rumours of the SEC’s approval on several occasions.
Its value is down by around 12 per cent since 10 January and it remains 36 per cent below its November 2021 peak.
Analysts at the bank and its wealth management division compared the inflows to that of the recently launched SPDR Gold Shares ETF in the US, which saw inflows of $1.3billion in its first week alone.
The investment bosses of UBS Global Wealth Management and Global Emerging Markets, Mark Haefele and Michael Bolliger, as well UBS strategists Jennifer Stahmer and Daisy Tseng wrote on Friday: ‘While many investors view ETFs as an easier way to access and invest in digital assets, investor interest and flows have so far not lived up to pre-launch expectations.
‘The fundamental investment case for crypto assets broadly remains weak, in our view.
‘While access to bitcoin ETFs has helped investors, we remain unconvinced of the structural case for crypto assets.’
The analysts added that investor requirements ‘remain restrictive’, and that initial ‘hopes’ of the launches sparking ‘large inflows’ from institutional investors seeking more liquid exposure to bitcoin are yet to come to fruition.
Early data suggests initial flows into the 11 bitcoin spot ETFs have largely been to the benefit of fund giants BlackRock and Fidelity, leaving crypto market entrants like Bitwise as well as peers like Franklin Templeton scrapping over a much smaller fraction of investor cash.
Crypto enthusiasts are also waiting for the next ‘halving’ event due in April.
This sees the reward for mining bitcoin fall by half, thereby reducing the supply of fresh bitcoin coming to market and, in theory, boosting the value of those already in existence as a result.
Again, UBS is sceptical.
The analysts wrote: ‘There is little correlation between bitcoin “halving” and improved performance.
‘While the third halving [in May 2020] coincided with a rally to an all-time high of nearly $68,000, we do not see a statistically significant pattern that would suggest a strong correlation between the event and price performance.
‘Additionally, we believe crypto assets are likely to stay volatile. Security concerns remain.
‘Fundamentally, we are still not convinced that crypto assets can make significant inroads in meaningful and disruptive real world use cases.
‘Crypto assets can expose investors to legal, regulatory, technological, reputational, and market risks, as well as criminal and illicit activities.
‘So, while bitcoin ETFs provide an easy way for investors to invest in digital assets, the fundamental case for crypto assets broadly remains weak, in our view.’
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