ETHW's debut raised over $200 million. What is the strategy of "debut player" Bitwise in the battle for crypto ETFs?

Author: Nancy, PANews

Ethereum's tenth anniversary has ushered in milestone progress, with 9 spot ETFs finally "cleared" for approval, marking a victory for 8 issuers after years of regulatory resistance towards Ethereum's mainstream adoption. On its debut day, July 23, the trading volume of Ethereum spot ETFs exceeded $1 billion, which is only 23% of the $4.6 billion trading volume on the first day of Bitcoin spot ETFs in January this year.

Although rising market demand will drive up crypto ETFs, the competition among homogeneous products will inevitably be fierce, as evidenced by the market landscape of Bitcoin spot ETFs. Among these issuers, the crypto-native institution Bitwise lacks the clout of traditional giants like BlackRock and Fidelity, but its crypto ETF's fund size remains considerable, and its underlying "tactics" are worth noting.

Bitwise is one of the well-known crypto index fund management companies in the United States, having launched the first crypto index fund in 2017. It currently offers 20 products, covering ETFs, publicly traded trusts, private funds, hedge funds, and NFT collectibles.

ET HW's debut trading attracted over $200 million, BITB received over 110 institutional holdings

The recovery and prosperity of the crypto market are prerequisites for the development of ETFs. This year, the approval of Bitcoin spot ETFs, the U.S. elections, and the Federal Reserve's interest rate cuts are driving a V-shaped reversal in the crypto market. These ETFs, as channels for old money, have also become one of the first beneficiaries, experiencing strong growth momentum.

Last night, the Ethereum spot ETF made its debut, with a total trading volume exceeding $1 billion on the first day, mainly from Grayscale ETHE, BlackRock ETHA, and Fidelity FETH. However, data from Farside Investors indicates that the Ethereum spot ETF experienced capital outflows on its listing day, with Grayscale ETHE seeing over $480 million in net outflows, while Bitwise's ETHW became the "capital attractor" with over $200 million in net inflows, far exceeding Fidelity FETH's $71.3 million and Franklin EZET's $13.2 million.

At the same time, Bitwise's Bitcoin spot ETF performance is also quite remarkable. According to SoSoValue data, as of July 22, the total net asset size of U.S. Bitcoin spot ETFs has risen by hundreds of billions of dollars in just six months, reaching $62.14 billion. Although the current market has a significant head effect for Bitcoin spot ETFs, from the perspective of fund flows, Bitwise's Bitcoin spot ETF BITB is also a favored investment target.

SoSoValue data shows that as of July 22, BITB's cumulative net inflow reached $2.2 billion, ranking fifth, surpassing the combined inflows of the six lower-ranked Bitcoin ETFs, creating a considerable gap with this group of ETFs. At the same time, BITB's total net asset value reached $2.72 billion, ranking fifth among the 11 U.S. Bitcoin ETFs, with a market share of 4.5%. Although its overall market share still cannot compete with leading ETFs like BlackRock and Grayscale, Dune data indicates that BITB's weekly funds are primarily net inflows, with only a few instances of outflows.

From a price performance perspective, since its launch, BITB's price has risen nearly 45.7% to $37.2. According to Fintel data, as of July 23, there are 117 publicly traded companies reporting holdings in BITB, collectively holding about 1,067 shares of BITB, currently valued at over $390 million.

Fintel's statistics show that BITB's holding institutions include investment advisory firms like Pine Ridge Advisers, major U.S. market makers like Jane Street Capital, hedge fund management companies like Boothbay Fund Management, overseas hedge fund giants like Millennium Management, and options trading giants like Susquehanna International Group. Recently, Bitwise CEO Hunter Horsley disclosed that a large U.S. bank has 20% of its wealth management branches (hundreds of them) holding Bitwise ETFs.

For a crypto-native asset management company without a deep traditional financial background, Bitwise has made a strong start. The Bitwise Asset Management team consists of over 60 professionals with backgrounds from BlackRock, Millennium, Blackstone, ETF.com, Meta, Google, and the U.S. Attorney's Office. Among them, Bitwise CEO Hunter Horsley previously served as a product manager at Facebook and Instagram and graduated from the Wharton School of the University of Pennsylvania. Bitwise has received multiple rounds of funding, with investors including Elad Gil, Electric Capital, Bridgewater CEO David McCormick, Blackstone executive Nadeem Meghji, Vetamer Capital, ParaFi Capital, and Coinbase Ventures.

Three major ETF competition strategies, Bitwise boldly bullish on crypto assets

Competing for first launches, speed, fee reductions, and fee waivers… all issuers are secretly vying for "position."

To gain greater scale and liquidity among numerous competitors, Bitwise has focused on aspects such as issuance timing, trading fees, and ecosystem support.

The early bird catches the worm, which typically presents a clear first-mover effect in the ETF business. As one of the first approved Bitcoin spot ETFs, Bitwise submitted its application as early as October 2021 and finally received approval from the SEC this January after multiple rejections; regarding the Ethereum spot ETF application, although Bitwise's application came later than other competitors, it is still a "first player," and Bitwise was also the first issuer to disclose a seed fund of $2.5 million for the Ethereum spot ETF.

At the same time, to avoid falling behind in the fiercely competitive race, fee rates have become a breakthrough point for issuers to create differentiated competitive advantages, which is also the most effective competitive method. In terms of fees, BITB has the lowest management fee among all Bitcoin spot ETFs at only 0.2%, and the management fee for the first $1 billion in assets is waived for the first six months; ETHW's fee is also 0.2%, second only to Franklin Templeton's "EZET" and Grayscale's Ethereum mini ETF "ETH," with fee waivers for the first $500 million or the first six months. Clearly, low fees are an important lever for Bitwise to attract capital inflows.

In addition to these conventional expansion strategies, Bitwise has also gained favor and recognition from the crypto community by providing financial support for the development of Bitcoin and Ethereum ecosystems.

When BITB was launched, Bitwise announced that it would donate 10% of BITB's profits to three nonprofit organizations funding Bitcoin open-source development, BrinkOpenSats, and the Human Rights Foundation's Bitcoin Development Fund, which play a key role in enhancing the security, scalability, and usability of the Bitcoin network. These donations will occur at least once a year for the next ten years to further support the health and development of the Bitcoin ecosystem; similarly, ETHW will also donate 10% of its fund profits to Ethereum open-source developers Protocol Guild and PBS Foundation, with the donation plan continuing for at least ten years, occurring annually, and the recipient organizations may change based on annual reviews. To ensure transparency, both BITB's Bitcoin address and ETHW's Ethereum address have been made public.

It is worth mentioning that Bitwise is boldly "bullish" on the prospects of crypto assets. Bitwise CIO Matt Hougan recently stated that the inflows into Bitcoin spot ETFs, the Bitcoin halving, the political shift regarding Ethereum spot ETFs, and the prospects of Federal Reserve interest rate cuts all create a better long-term environment for cryptocurrencies. Coupled with the strong growth of the stablecoin market, Layer 2 development, and increasing participation from institutions like BlackRock in the field, the right development combination in the second half of the year could easily push Bitcoin to $100,000. Additionally, while it is expected that ETH's price will be "volatile" in the first few weeks after the Ethereum ETF launch due to potential outflows from the $11 billion Grayscale Ethereum Trust (ETHE) converting to a spot ETF, by the end of the year, ETH's price is expected to exceed $5,000 and set a new all-time high. If the inflow is stronger than many market commentators expect, the price could be even higher.