A milestone week that began with the introduction of the first Bitcoin-based exchange traded fund (ETF) ended just as it began — with a new fund based on the world's leading cryptocurrency.
On Friday, digital asset manager Valkyrie launched its Bitcoin Strategy ETF (BTF) on the Nasdaq exchange. The company anticipates its fund will be the first of at least a couple more, as big and small investors flock to crypto investments.
Valkyrie's Bitcoin ETF followed the debut of the Proshares Bitcoin Strategy ETF (BITO), which listed on the New York Stock Exchange (NYSE) on Tuesday with a near-rapturous reception from investors, en route to becoming the second highest-traded ETF debut ever.
The attention helped drive Bitcoin's spot price to a fresh record just below $67,000, making any follow-up acts tough to follow. It also drove up BITO's assets under management (AUM) to over $1 billion within less than 2 days.
By comparison, Valkyrie's ETF began trading at $25.52 per share, and fell to a low of $24 by Friday’s close. However, the company downplayed the move, preferring to focus on the longer-term implications of new crypto-based products.
"We believe that demand is strong enough to bring two or three Bitcoin futures ETFs to roughly the same AUM given enough time, and then investors will ultimately decide which firm best fits their values and they'll eventually pull ahead of the pack," CEO Leah Wald told Yahoo Finance Live.
Wald admitted that for Valkyrie the last few weeks leading up to their listing of BTF felt like both "a marathon and a sprint."
As their approval by the Securities and Exchanges Commission neared, Valkyrie had to change plans for listing their Bitcoin ETF earlier in the week. With their product being made effective late Wednesday afternoon, they chose to pivot their launch to Friday after consulting with launch partners according to Wald.
As they approached the finish line, the company attempted a last minute revision of their ticker symbol from "BTF" to "BTFD." The latter was a reference to a popular meme in crypto and stock retail investor communities that stands for "buy the [expletive] dip" — but the SEC quickly asked the firm to change it back to their original symbol.
First mover advantage
After its launch, the demand for BITO proved so high that some investors voiced concerns that excessive buying pressure on the fund could breach the position limit of futures contracts it could hold in a given month.
After that happens, a futures-based ETF would need to buy other investments less directly tied to futures contracts, which would further dilute how accurately it achieves returns similar to the underlying Bitcoin price.
More ETFs such as Valkyrie and VanEck could possibly benefit from this excess demand, if investors are concerned about dilution. But Wald downplayed those fears.
"A lot of people have been asking today about position limits and how they affect the ETFs. The more ETFs that enter the Bitcoin futures market, the less of a concern position limits become," Wald told Yahoo Finance.
"And that's mainly because there will be more whales in these markets which should make it harder for one participant to control the market. We're of the opinion that diversification is good," she added.
In the last day, however, buying fervor for Bitcoin and related products has cooled, with BTC giving back about 5% and BITO dropping almost 4% amid indications that the digital coin was increasingly overbought.
Despite playing second fiddle to BITO, Valkyrie is leaning into its strength as a crypto-only asset manager, believing that BTF might better appeal to retail investors. Yet some investors aren't convinced Valkyrie's ETF will get the same reception.
Jon Wolfenbarger, an analyst and founder of investing site Bull And Bear Profits, told Yahoo Finance that the advantage of BITO listing first cannot be disregarded. He cited the past trend from other crypto sector ETF debuts.
"There are significant economies of scale with ETFs. The first mover advantage is powerful," the analyst explained. For example, two actively-managed blockchain-based ETFs, BLOK and BLCN, launched one day apart, and a week before two other competing funds, LEGR and KOIN.
Today, "BLOK manages 75% of the total assets among those four ETFs," said Wolfenberger.
One factor that won't come into play while investors decide between BITO and BTF is cost. Both ETFs share the same expense ratio of 0.95%.
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.