On January 10, the U.S. Securities and Exchange Commission approved the first U.S.-listed spot bitcoin exchange-traded fund. When the market opened two days later on Friday, January 12, there were 11 spot bitcoin products trading on U.S. exchanges, with hundreds of millions of dollars flowing into them.

The path that led to the approval of these products was a particularly long and difficult one. Spot bitcoin ETF advocates, including crypto fans and asset managers, had fought a 10-year battle against regulators, elected officials and financial industry leaders. Team crypto’s eventual victory hinged on a federal appeals court ruling that found the SEC had erred in rejecting applications for the new products.

“I think it’s important to think about the regulatory and reputational implications here,” says Doug Schwenk, the CEO of Digital Asset Research, a cryptocurrency researcher and data provider that works with institutions, asset managers and wealth managers. “I think we’ll see continued progress in bitcoin as an investable asset and less of the regulator pushback. We’ll see fewer statements that crypto should be outlawed. It becomes a harder argument to make.”

While arguing for U.S.-listed spot bitcoin ETFs, cryptocurrency enthusiasts often repeated the claim that the products would provide an easy entry point for wealth managers and their clients. Indeed, some market watchers predict that hundreds of billions of dollars could flow into these new products within the first year, increasing both the market capitalization of bitcoin and total ETF assets in the U.S.

Now that the debate over whether these ETFs should be approved is over, it may be time to take a closer look at spot bitcoin ETFs and whether they’re really the big answer that advisors—and the digital assets industry—are looking for.

The Good
Investors will certainly enjoy better access to cryptocurrency now that it’s offered in ETF wrappers. Anyone can trade an exchange-traded fund. It’s tax-efficient by design and can trade in real time (like the underlying tokens).

It also means that a product representing the spot price movements of a digital asset can, for the first time, be held in a brokerage account in the U.S. alongside other asset classes like equities and fixed income.

“This makes exposure to bitcoin more broadly available, and I don’t really think we’ve seen the effects of that yet,” Schwenk says. “It’s going to take a while for these things to percolate to all the people who may not be paying as much attention, or who may have been turned off by the lack of access in brokerage accounts.

“As the news trickles down and the new availability of bitcoin does play out and people rethink their investment theses, we’re going to see more uptake of bitcoin and maybe a revisiting of crypto overall.”

Of course, it’s also simple to buy crypto directly, at least if you’re an individual investor. Yet it’s been notoriously difficult for financial advisors and many other intermediaries. So it’s to their benefit that spot ETFs have arrived: By using an ETF to account for more—or all—of their clients’ cryptocurrency allocation, advisors can more easily account for those assets while managing portfolios.

For the cryptocurrency industry, the products are also an important step toward normalizing the holding and trading of digital assets, Schwenk says.

“It signals that there’s some movement towards greater acceptance and legitimacy. The whole regulatory regime remains a challenge, still, but this is definitely a step in the right direction instead of the industry continuing to hit a brick wall where nothing new can happen.”

How To Differentiate
All 11 of the new spot bitcoin ETFs hold the same asset—bitcoin tokens. They all behave very similarly, and there’s not a lot to distinguish them when it comes to management. Advisors hunting crypto funds for clients will be sifting through only a handful of differentiators: the expense ratios, the brands, the managers and the fund prices.

As far as their expense ratios, the new ETFs range from a low of 0.2% for the Bitwise Bitcoin ETF (BITB) to a high of 1.5% for the Grayscale Bitcoin Trust ETF (GBTC).

When it comes to brand choice, Schwenk thinks investors will gravitate to established names like BlackRock and its iShares Bitcoin Trust ETF (IBIT) or Fidelity and its Wise Origin Bitcoin Fund ETF (FBTC). Both come with 0.25% expense ratios.

“You should also look at the liquidity of the ETF, how often is it traded, and whether it is trading at discount to NAV, at premium, or at par,” Schwenk says. (Full disclosure: His firm acts as price provider for BlackRock’s fund, providing input information for the investment valuation.)

Other familiar asset management brands have entered the fray as well with their own products: the Ark 21Shares Bitcoin ETF (ARKB), the VanEck Bitcoin Trust (HODL), the WisdomTree Bitcoin Fund (BTCW), the Invesco Galaxy Bitcoin ETF (BTCO), the Valkyrie Bitcoin Fund (BRRR), the Hashdex Bitcoin Futures ETF (DEFI) and the Franklin Bitcoin ETF (EZBC). But not every fund will survive in the long term, Schwenk says.

“We don’t need 11 of these. We’ve already seen a fight over fees, and we’ve already seen a fight over brand and reputation. I can’t see a long-term future where all 11 of these will have material AUM, so I suspect that we’ll see some consolidation.”

The Bad
Even if the long-awaited emergence of spot bitcoin ETFs is good news for many asset managers and investors, there are a few caveats when you’re thinking of investing in cryptocurrencies through an exchange-traded fund. For one thing, ETF investors miss out on several advantages of owning tokens directly, such as the ability to stake (pledge assets for rewards) and other income-generating strategies, as well as participation in an ongoing technology project. ETF investors can’t take tokens offline and keep them in a secure cold storage; the funds will always be held by the asset manager.

Like any other ETF trading in a single stock or commodity, bitcoin ETFs by themselves aren’t likely to be a major part of anybody’s personal wealth management portfolio. Instead, they’ll probably be used as more of a trading tool for highly active investors. Bigger investors, such as institutions, will likely look at these funds for signals of digital coins’ price performance.

Another disadvantage, of course, is that ETFs come with fees. Owning bitcoin tokens directly can be fee-less. So it may be difficult for fiduciary advisors to justify holding their client’s bitcoin allocation in products laden with charges the client wouldn’t otherwise be paying if the cryptocurrency had been bought directly.

These new bitcoin ETFs “are probably going to have broader success with the retail market, but the fact that they’re in a better wrapper and listed on exchanges—and coming from reputable, established firms—will give some institutional clients more comfort with them,” says Schwenk. “We do run into institutional clients who have used cryptocurrency futures as their primary way to express an opinion because of the discount to net asset value on many digital currency products.”

Because they trade in real time, ETFs should be able to more successfully track a cryptocurrency’s net asset value than private crypto funds have; the ETFs’ prices will also move independently of the coins’ net asset value and may at times even trade at premiums or discounts.

There’s also a question about whether digital asset investors should concentrate their holdings in bitcoin alone. Unlike many other prominent tokens, such as ethereum, solana and cardano, bitcoin’s blockchain isn’t used as the infrastructure for technological development. Its value comes purely from the scarcity embedded into its programming, and the speculative appetite of crypto investors.

“You’re locked into bitcoin as your only choice if you want to invest via an ETF right now, and that might be OK for a lot of people who think about bitcoin alone as diversification in their portfolio,” Schwenk says. However, you’re not diversified within the crypto space itself, which could spell trouble if any problem with bitcoin itself arises. “It could be the technology, could be an ongoing reputational problem, it could be an investment thesis problem where people struggle to see where bitcoin cash flows come from and what justifies its price.”

More, Better Products To Come?
The landscape is going to keep changing. Before the spot bitcoin ETF arrived, investors had to work with crypto futures funds. And the new products will have to make room for even newer ones. Spot ethereum ETFs are on the horizon in the near future, and those products will likely be followed by funds tracking cryptocurrency indexes with many different tokens, active cryptocurrency ETFs, and multi-asset ETFs containing allocations to cryptocurrency.

Within the next decade, advisors will likely be able to access a tokenized version of the S&P 500 that represents the stock index but trades openly, without an exchange or any intermediary, in real time, like a cryptocurrency. The idea is to create even more resource-efficient, tax-efficient and liquid trading vehicles. Which means the story of cryptocurrency ETFs likely doesn’t stop with spot bitcoin. With better products promised to be at their fingertips in the future, some advisors might still think of waiting to get in.

“Almost every large asset manager or ETF sponsor we talk to across the board has a cryptocurrency strategy,” says Schwenk. “They’re all looking for moments that they want to get into the market, and for most, this isn’t it. They think it will be a race to the bottom on fees, and these products aren’t really interesting to innovate with today. Most of these companies are looking for different ways to bring crypto ETFs to market and they’re waiting for the right timing to do so.”

The real question, says Schwenk, is whether the SEC will now be more open to innovation in the cryptocurrency product space, or whether these spot bitcoin ETFs are a onetime relaxation of the agency’s opposition as it gears up to fight newer products in the future.

Schwenk says: “I predict they are cautiously receptive to an ethereum ETF because of where ethereum is at right now in terms of whether or not it could be a security, how liquid the markets are and the level of institutional support from companies like Coinbase. I suspect, however, that as long as [Gary] Gensler is the SEC chair, we’ll see continued resistance to making progress on these products.”