A flurry of firms bet on the attractiveness of a battered bitcoin

A rising number of firms are relying on bitcoin and ether's long-term attractiveness, a risky wager in the midst of a crypto winter.

Unfazed by a price drop over the last 11 months, investment firms have launched a flood of exchange-traded funds, betting that top cryptocurrencies and their underlying technology would triumph in the end.

Morgan Stanley claimed in a note issued this month that half of the world's active crypto exchange traded products (ETPs) and trust products had emerged since the bitcoin bear market began. The proliferation occurred despite the fact that the entire market value of assets fell 70% to $24 billion during that time period as crypto prices plummeted.

According to Morgan Stanley, around 95% of those 180 funds are focused on the top two coins, bitcoin and ether.

“Naturally when the market is slower, prices are lower, people have lost money, the intensity of the appetite does diminish,” said Chen Arad, co-founder of crypto risk monitoring firm Solidus Labs. “But it’s not the case in the long run. As a whole, I don’t think anyone is giving up.”

The appeal of ETPs is that they provide exposure to digital assets on a regulated stock exchange, removing the need for ordinary and institutional investors to worry about securely keeping their cryptocurrency and avoiding hacks and heists.

According to a research by digital asset manager Coinshares, cryptocurrency investment products have garnered approximately $453 million in net inflows this year, with the majority of it flowing into bitcoin and investment vehicles that comprise the largest cryptocurrencies.

"There is a shift in asset allocation toward baskets that combine the top five or ten crypto assets by market capitalization." When contrasted to alternative assets in the crypto business, it's a flight to quality," said Eliezer Ndinga, director of research at 21shares.

Solana, Cardano, and Ripple are three other prominent cryptocurrencies.

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However, the majority of current crypto ETP products are registered outside of the United States, with Switzerland, Canada, Australia, and Brazil leading the way with spot crypto offers.

One reason is that US regulators have rejected several applications for spot bitcoin funds, which mirror the cryptocurrency's price movements on a tick-by-tick basis, citing a variety of reasons, including a lack of surveillance-sharing agreements with regulated markets relating to the underlying assets.

To preserve their position, investors in futures-based funds must frequently bear the additional cost of the futures rollover as contracts approach settlement day.

Bitcoin has lost 17% in the last three months, while the ProShares Bitcoin Strategy ETF, which tracks bitcoin futures, has lost almost 21%. Grayscale Bitcoin Trust (GBTC.PK), the world's largest bitcoin fund, is down 34% in the same period.

According to Refinitiv Lipper statistics, the assets under management (AUM) of the ProShares Bitcoin Strategy ETF had dropped to little over $600 million at the end of September. When it first debuted a year ago, it quickly raked in over $1 billion.

Grayscale's Bitcoin Trust's AUM has dropped to $12.2 billion from over $30 billion at the end of 2021, according to corporate data.

Will Peck, head of digital assets at WisdomTree, whose spot bitcoin ETF was prohibited by US regulators last week, said he wasn't surprised by the decision but hoped for a resolution.

“I think we’ll ultimately get there. But we’ll be in a holding pattern for the foreseeable future.”

By fLEXI tEAM