Unlocking Bitcoin: How ETFs Opened the Floodgates for Institutional Investment

Bitcoin has always attracted the outsiders, the outcasts, and the unconventional. From the earliest days, eccentric geniuses, visionaries, and big-brain thinkers were drawn to Bitcoin like moths to a flame. As their numbers swelled, mavericks like Roger Ver, Adam Back, and Charlie Shrem were joined by suited investors such as Tim Draper, all of whom saw the upside to Bitcoin and the underlying technology it’s built upon.

In the decade since those founding fathers first staked their claim in Bitcoin’s uncharted lands – and were handsomely rewarded for their foresight – the trickle of prospectors has become a torrent. Today, it’s an asset class accessed by hundreds of millions of investors, ranging from housewives to high-flying execs. But despite accessing the same underlying asset – Bitcoin – these entities go about doing so in very different ways. For Wall Street firms, this has primarily meant going down the ETF route and this year they’ve done that in their droves.

The Rise of the Spot Bitcoin ETF

The idea of a Bitcoin ETF is almost as old as Bitcoin itself. Since as early as 2013, the notion has been floated, with advocates of the Winklevoss twins, founders of Gemini Exchange, among the first to submit an application to the SEC. However, the agency proceeded to reject multiple Bitcoin ETF applications over the following years due to concerns about market manipulation, liquidity, and the maturity of cryptocurrency markets.

While futures-based Bitcoin ETFs were approved by the SEC in late 2021, it wasn’t until early 2024 that the first spot ETF was given the green light. It’s thus taken a decade for Bitcoin to achieve global recognition, maturity, and liquidity to convince regulators that it is a viable alternative asset that warrants being made available in ETF form to institutions.

On a recent episode of The VALR Podcast, Eric Balchinas, Senior ETF Analyst at Bloomberg, reflected on the magnitude of getting a Bitcoin spot ETF over the line at last. Hosted by global crypto exchange VALR, the podcast covers all aspects of the crypto landscape, from stablecoins to futures trading.

In the October 7 episode, the pros, cons, and controversies surrounding crypto ETFs were thoroughly explored, with Eric Balchinas reflecting: “The Bitcoin ETFs took 11 [years], and it was crazy. I'd never seen anything like it. Obviously, the SEC just wasn't into it….[The SEC] finally approved them because they got sued…and when it came out…it was like a pressure buildup that had been popped and the money came in fast and furious.”

Following the landmark ruling, an impressive 10 ETFs were launched on the same day including GBTC which converted its fund to an ETF. The dam had broken, and ever since then Bitcoin and institutions haven’t looked back.

1 Million BTC Milestone Looms

The approval of the first spot Bitcoin ETF opened a floodgate through which hundreds of billions of dollars of institutional capital has subsequently flowed. As of early October, the 10 regulated US spot Bitcoin ETFs have accrued more than 922,000 BTC and are on course to hit the 1M mark before the end of the year. On a typical day, Bitcoin ETFs record an average inflow of $50M, and with BTC up 124% in a year, it’s proven a shrewd investment for firms that took up a position at the earliest opportunity and kept adding to it.

Once the Bitcoin spot ETF was in the bag, it was inevitable that institutions would begin pushing for greater exposure to the broader crypto market starting with the approval of spot ETFs for other leading cryptos such as SOL and ETH. In July, the first ETH ETFs began trading in the US, and while uptake has been slower than BTC, they’ve also served to bring billions of dollars of institutional capital into the industry.

The convenience of ETFs, which can be bought and sold through any brokerage account, has allowed millions of ordinary investors to gain exposure to BTC without needing to custody the coins. As a result, such individuals can capture the upside to BTC and the broader crypto market without needing to concern themselves with the complexities of managing digital assets.

A number of factors have contributed to BTC’s impressive rise in 2024, including the approval of the ETFs themselves, coupled with a backdrop of rising global tensions, particularly in the Middle East, and persistent inflation, which has strengthened the appeal of alternative assets. It’s no coincidence that gold, which is often bracketed with BTC, has also recently hit an all-time high.

From “magical internet money” shilled by a few early evangelists to a legitimate asset held by pension funds and Wall Street investment firms, Bitcoin has been on quite the journey. Over the last decade, the shady exchanges that served as the prime brokers of BTC have faded into the background or been forced to enact stringent compliance. While centralized exchanges still serve the retail market, for institutional investors today, the gateway to Bitcoin is invariably the ETF.