Title: The Surprising Ownership of Bitcoin ETFs
Author: Matt Hougan, Chief Investment Officer at Bitwise
Compiled by: Luffy, Foresight News
Bitcoin ETFs have achieved tremendous success. Since their launch on January 11th, they have attracted $11.7 billion in funds, making them the most popular ETFs in history.
Now everyone wants to know: who is buying them? Specifically, people are curious about whether it’s professional or retail investors driving the capital flow.
This is an important question. The immense potential of Bitcoin ETFs lies in their ability to open up a significant avenue for professional investors to buy Bitcoin, thereby substantially increasing the investment pool for Bitcoin.
If it’s professional investors buying in, that’s great. But if it’s all retail investors, it’s not as encouraging. Why? Because the scale behind it is fundamentally different.
In the months following the launch of the ETFs, this question remained unanswered. Investors purchased ETFs through brokerage accounts, which meant fund companies like Bitwise didn’t know who was buying their funds. However, once a quarter, the U.S. Securities and Exchange Commission requires investors with assets over $100 million to report their holdings of publicly traded securities through a document called a “13F” filing.
Technically, these filings are supposed to be submitted within 45 days after the end of the quarter, which means investors have to file by May 15th. But thousands of filings have already been submitted, giving us a preliminary understanding of the owners of these ETFs.
The data is incredibly intriguing, and here are the three most important points.
Point 1: Many professional firms own Bitcoin ETFs
To compile this memo, I analyzed all the 13F filings for the 11 publicly traded Bitcoin ETFs as of May 9th. The significant finding is that many professional investors own Bitcoin ETFs.
This includes some well-known asset management companies, such as:
– Hightower Advisors: According to Barron’s, this company is the second-largest RIA firm in the U.S., managing $122 billion in assets. They own $68 million worth of Bitcoin ETFs.
– Bracebridge Capital: A Boston-based hedge fund managing funds for institutions like Yale University and Princeton University. They hold $434 million worth of Bitcoin ETFs.
– Cambridge Investment Research: A company with over 40 years of history, managing over $170 billion in assets. They own $40 million worth of Bitcoin ETFs.
– Sands Financial Advisers: Based in Towson, Maryland, with a market value of $17 billion. They own $12 million worth of Bitcoin ETFs.
– Integrated Advisors: A Dallas-based firm with over 12,000 clients, managing $4 billion in assets. They own $11 million worth of Bitcoin ETFs.
– Brown Advisory: A San Francisco-based company with a value of $96 billion. They hold $4 million worth of Bitcoin ETFs.
As of last Thursday, a total of 563 professional investment companies reported owning $3.5 billion worth of Bitcoin ETFs. By the filing deadline of May 15th, I estimate that we could end up with over 700 professional companies, with total assets under management close to $5 billion.
This is undoubtedly a big deal. For anyone wondering if they are the only financial advisor, family office, or institution considering investing in Bitcoin, the answer is clear: you are not alone.
Point 2: Historic scale of professional investor ownership
For a new ETF, this level of ownership is extraordinary. Most ETFs have very few 13F filers in the first few months of listing. Bloomberg ETF analyst Eric Balchunas referred to the number of large investors in Bitcoin ETFs as surprising.
The closest comparison I could find in historical records is the launch of the gold ETF in late 2004. At that time, the launch of the gold ETF was considered the most successful ETF in history, raising over $1 billion within five days. But when it first filed its 13F, the gold ETF had only 95 professional firms invested.
In terms of ownership breadth, Bitcoin ETFs have achieved historic success.
Point 3: Retail investors hold the majority of circulating shares in Bitcoin ETFs
While I believe $30-50 billion and 563-700 companies are significant achievements, it’s important to remember that the assets managed by Bitcoin ETFs amount to $50 billion. Therefore, in terms of the total investment percentage, professional investors only own 7-10% of the total assets.
I suspect the media will seize on this number, implying that these ETFs are driven by retail investors. To some extent, their claim makes sense: retail investors have indeed invested a significant amount of funds into Bitcoin ETFs, which is a good thing. It means they can access these investments on par with the world’s largest institutions.
However, I believe this claim overlooks a key pattern we have observed within institutions when it comes to cryptocurrency allocation.
Let me explain.
Why these 13F filings make me unusually optimistic
Bitwise has been dedicated to helping professional investors access cryptocurrencies for over seven years. Today, we serve thousands of companies, including RIAs, brokers, family offices, and institutions.
One thing I’ve learned from seven years of practice is that most investors follow a familiar pattern:
Step 1: Due diligence. Most professional investors take 6-12 months to evaluate cryptocurrencies. It is exceedingly rare for clients to allocate funds to the field immediately after the initial meeting.
Step 2: Personal allocation. We often see professionals make a small personal allocation before allocating on behalf of clients. They want to test the waters before pushing investors into the market.
Step 3: Independent client allocation. Next, these professionals typically allocate to a small number of clients, usually those who actively inquire about cryptocurrencies.
Step 4: Platform-wide allocation. Around six months after the initial allocation, many companies begin allocating across their entire client base, ranging from 1% to 5% of portfolios.
Not all advisors adhere to this pattern, but it is what we typically observe.
This tells us that the Bitcoin ETF allocations shown in the recent 13F filings are just initial attempts. For example, Hightower Advisors may allocate $68 million to Bitcoin ETFs today, which is great, but it represents only 0.05% of their assets. If they follow the pattern mentioned above, this allocation will increase over time. Specifically, allocating 1% of their portfolio to Bitcoin would amount to $1.2 billion, and this is just from one company.
When you consider the growing number of professional investors participating in this space, you’ll understand why I’m so excited.
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