Crypto product pipeline goes bust as industry survival questioned

Assets in crypto-focused products have plunged almost 72 per cent, hovering around US$22 billion (S$30.2 billion) as at mid-November. PHOTO: AFP

NEW YORK – Even before the collapse of the FTX exchange brought the crypto industry to heel, the boom in virtual currency exchange-traded products (ETPs) was deflating.

Launches worldwide for ETPs focused on digital assets have dwindled to a trickle, from 58 in the first half of the year to 14 in the third quarter, with just one debut in October, according to data compiled by Bloomberg. None has come to market so far in November, a month that has seen the implosion of a number of once-supreme crypto firms.

ETP is the catch-all term that refers to exchange-traded funds (ETFs), notes and commodities. Crypto vehicles globally use all these structures but are often colloquially referred to as ETFs.

Meanwhile, there has been an uptick in liquidations, with seven vehicles shuttering, according to a tally by Bloomberg Intelligence. Cosmos Asset Management in Australia recently closed its Purpose Bitcoin Access ETF and its Purpose Ethereum Access ETF, while issuer 21Shares closed its Avalanche ETP, among others.

“I am expecting a wave of crypto-related ETF liquidations over the next year,” said Mr Nate Geraci, president of The ETF Store, an advisory firm. “There are simply too many crypto-related ETFs and not nearly enough investor demand to support them – especially during a ruthless crypto winter where some are questioning the entire viability of the space moving forward. There will certainly be some longer-term survivors here, but it is going to be a complete bloodbath between now and then.”

The crypto market is beset by the disintegration of some of its most high-profile participants. FTX has filed for bankruptcy amid a liquidity crunch. The blow-up has pushed the price of Bitcoin below US$17,000, down from its record of near US$69,000 in 2021. Other crypto firms and asset managers have become ensnared by the pullback that followed FTX’s collapse.

Assets Plummet

Assets in crypto-focused products have plunged almost 72 per cent, hovering around US$22 billion (S$30.2 billion) as at mid-November, down from a peak of US$78 billion in October 2021.

“Until we find the various crypto-related firm collapses like FTX in the rear-view mirror, investors are unlikely to jump back into crypto-related products in the near term,” said Ms Sylvia Jablonski, chief investment officer at Defiance ETFs. “There is a sense of instability in the crypto ecosystem, and it comes at a time when investors have been risk-off, pessimistic and generally avoiding any kind of growth-related products.”

Just last year, the crypto funds pipeline produced products with great success amid a historic boom for the digital assets market, when Bitcoin added 60 per cent in value on top of the 305 per cent gain the year prior. Last year also saw the roll-out of the first Bitcoin futures funds in the United States, which received a wild reception.

Mr Matt Hougan, chief investment officer at crypto-focused Bitwise Asset Management, said that the 2020-2021 bull market attracted a lot of “tourist companies” to the space. Those companies are being winnowed in the current bear market, he said on a Bloomberg podcast.

Still, he suspects that “there will be more crypto ETFs in five years than there are today”, adding that in the long term, “ETFs are going to be one of the primary ways that investors gain access to crypto and... you will see significant flows into the space”. BLOOMBERG

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