How Crypto ETP Popularity Shows Institutions Are Gearing Up for the Next Bull Run

Exchange-traded products (ETPs) based on cryptocurrencies continue to gain traction in spite of an overall downturn in the market over the past year.

Crypto ETPs have experienced global net inflows of $379 million so far this year, according to data from exchange-traded fund fintech firm TrackInsight.

Instead of simply investing in equities linked to cryptocurrencies, these crypto ETPs enable investors with either direct exposure to them or through futures contracts.

Pent-up demand expected to explode

According to Kenneth Lamont, senior fund analyst for passive strategies at Morningstar, one reason for the popularity of these products is the flexibility they afford institutional investors in approaching the nascent and volatile asset class. 

Despite the surging demand from clients to tap into the crypto ecosystem, many are confounded by the underlying technology and thus require professional services, but most institutions have regulatory hurdles that preclude them from offering direct access.

Consequently, Lamont believes the persistent popularity of these products to be the result of “huge pent-up demand.” Data from TrackInsight details the launch of 39 crypto ETPs in the first seven months of this year, on pace with the 68 recorded last year.

Addressing this demand, some of the largest financial institutions launched their own crypto-related offerings this year. In spite of disparaging remarks regarding crypto from its chief executive in years past, the world’s largest asset manager, BlackRock, announced plans for a spot bitcoin private trust in Aug., in partnership with U.S. cryptocurrency exchange Coinbase.

In addition to launching crypto-related ETPs of its own in the Spring, Fidelity Investments, the United States’ largest pension provider, also became the first to offer its clients Bitcoin in the 401(k) portfolios, in which they reported seeing significant interest.

Anticipating the next crypto bull run

Somewhat surprised by the patience of these asset managers to “let the pendulum move back towards the long-term performance of these strategies,” Todd Rosenbluth, head of research at ETF analytics firm VettaFi, added that the frenzy of launches this year has largely been to stake claim on relatively “virgin soil.” 

Since there is inherently a limited amount of differentiation between crypto ETPs, long-term success could largely be dependent upon gaining early recognition and brand awareness.

This is especially the case, since most investors now believe that cryptocurrencies will continue to persist in some form, according to Lamont. Accordingly, Lamont believes these products are  “being launched in anticipation of the next crypto bull run.”