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Bitcoin And ether are regaining ground after falling to a six-month low on Monday, in the first major test of the recently launched cryptocurrency exchange-traded funds.
As of Monday morning, roughly $370 billion had been wiped off the market capitalization of all digital tokens over a 24-hour period, with bitcoin falling below $50,000 and ether recording its biggest daily decline in three years.
Much of this drop is related to a general market rout, with stocks falling around the world. What’s different for cryptocurrencies this time around compared to previous sell-offs is that many more investors are vulnerable due to the new crypto spot ETFs being launched.
Bitcoin ETFs began trading in January, followed by Ether funds last month. For many investors, this is their first exposure to cryptocurrencies and the volatility that comes with it. Netflow data from crypto data firm CoinGlass shows that, for the most part, ETF holders have stayed in the game.
Across all spot Bitcoin ETFs, there were net outflows of around $169 million. Notably, the popular IBIT fund issued by Black rock There were no redemptions, and Monday’s outflows represent just a fraction of the funds’ more than $50 billion market capitalization.
JPMorgan Chase Bitcoin spot ETF volumes more than doubled on Monday to over $5.2 billion from Friday, analysts wrote in a note. The trading volume eclipsed the January debut, the bank added.
Within spot ether ETFs, more than $49 million was added across all funds, and JPMorgan analysts added that trading volumes had “rebounded significantly.”
Digital asset analysts at Bernstein said in an Aug. 5 note that unlike previous cycles when it was harder to invest in bitcoin through cryptocurrency exchanges, bitcoin ETFs are alive and “highly liquid,” trading around $2 billion per day.
“We expect more approvals from brokerages in Q3 and Q4, providing new opportunities for asset allocation to Bitcoin,” they wrote.
From Wednesday, Morgan Stanley will allow its army of 15,000 financial advisors to offer spot Bitcoin ETFs issued by BlackRock and Fidelity to clients who meet certain criteria, including having a net worth greater than $1.5 million, CNBC has learned.
Until now, Wall Street wealth management firms have only facilitated trades if clients specifically requested exposure to new spot crypto funds. Morgan Stanley is the first major player to allow advisors to actively recommend a bitcoin allocation to their clients.
More will likely follow due to pent-up demand.
Bitcoin’s latest surge has coincided with tens of billions of dollars pouring into new crypto spot funds. That number could grow significantly as more financial advisors get involved.
“A lot of companies are in a waiting phase,” Franklin Templeton CEO Jenny Johnson told CNBC in May. “So we haven’t even had that second wave yet. This is really the first wave of early adopters.”
Franklin Templeton issues spot ETFs for bitcoin and ether.
“I think the next wave will be much larger institutions that will be more comfortable with how this is handled,” Johnson said.
But as bitcoin becomes a more liquid macro asset, Bernstein analysts expect the cryptocurrency to trade largely on “macroeconomic and electoral signals” for much of the third quarter.
“If broader equity markets recover, driven by the Fed’s response, we expect Bitcoin and cryptocurrency markets to follow,” they wrote.
Barclays analysts also noted Monday that trading volumes on ETF products are still dwarfed by volumes on cryptocurrency exchanges.
