But not everyone is on board the crypto ETF train. Critics argue that Bitcoin-linked ETFs may be worse than centralized exchanges for the cryptocurrency market. Prime beef? There is no possibility of withdrawing the primary instrument. This means that its holders will not be able to take advantage of the single most important feature of Bitcoin: the ability to control their money without having to trust anyone.
And it’s not just talk. The potential of these investment vehicles is already being realized in markets such as Canada. For example, the Purpose Bitcoin ETF has raised over $400 million in assets under management within just two days of its launch. It is no longer a question of whether crypto is an asset class or not.
It’s as if the startup gun was fired, and institutional investors jumped into the races, paving the way for a seismic shift in the financial landscape, with crypto-ETFs as the starting block.
Crypto ETFs unleash a domino effect
ETFs are a huge business. Blackrock alone I managed Approximately $3 trillion in client assets in ETFs at the end of March 2023 across a range of stocks, bonds and commodities.
The approval of crypto ETFs indicates more than just mainstream acceptance — they can drive market maturity, establish price stability and foster innovation, leading ETFs to create a broader range of digital assets and decentralized finance (DeFi) tokens, similar to the way in which The approval of the first ETF in 1993 led to the diverse array of ETFs today.
Related: BlackRock’s Misguided Efforts to Create ‘Crypto for Dummies’
But not everyone is on board the crypto ETF train. Critics argue that Bitcoin-linked ETFs may be worse than centralized exchanges for the cryptocurrency market. Prime beef? There is no possibility of withdrawing the primary instrument. This means that its holders will not be able to take advantage of the single most important feature of Bitcoin: the ability to control their money without having to trust anyone.
With the potential to become as mainstream as their stock or bond counterparts, crypto ETFs can appeal to a diverse group of investors. But the real disruptive element? Institutional nursery.
The race for crypto ETFs is fueling momentum for institutional custody
To be clear, it is not just custodial technology that causes disruption, but also the investor protection standards imposed on licensed custodians. As traditional financial institutions take the lead and launch cryptocurrency-related trading products in the United States, the demand for institutional custody solutions is skyrocketing. Early August alone saw six major file asset managers launch Ether (ETH) futures exchange-traded funds (ETFs) for US clients.
BlackRock’s expansion into crypto in the past year has been bolstered by its partnership with Coinbase, which, according to the filings, will be responsible for holding Bitcoin in the BlackRock ETF and providing market monitoring to curb fraud and market manipulation.
The cryptocurrency market itself is expanding rapidly. According to Markets and Markets, the crypto custody market was worth estimated $223 billion in January 2022, up from $32 billion in January 2019. And it’s not slowing anytime soon, with estimates projecting a compound annual growth rate of 26.7% through 2028.
Related: Bitcoin ETFs: Worse for cryptocurrency than centralized exchanges
The complexity and risks associated with a broader range of digital assets requires robust custodial services. As we move into Custody 3.0 — an era marked by active participation in the decentralized economy — these evolve to include on-chain service connectivity and DeFi applications. The key for digital asset custodians is to build on existing infrastructure and provide comprehensive services for investing digital assets within a high standard operational framework.
In this context, fully licensed digital asset custodians become trusted partners, enabling financial institutions to integrate digital assets into their business operations in a secure, scalable and compliant manner.
Organizational obstacles and triumphs
It’s been a brutal stretch for the crypto industry since the market peak in late 2021, but the frenzy of crypto ETF deposits from the biggest names on Wall Street has shown this corner of the market to be getting attention.
Regulation remains the biggest hurdle in the United States. Various fund companies have been trying for years to get crypto ETFs approved, but are being denied due to fears of fraud and market manipulation.
But not all is bleak on the regulatory front. Outside the US, we are seeing a global trend towards clearer regulatory frameworks for digital assets. It is like a regulatory domino effect, paving the way for the creation of strategic digital asset hubs in locations such as Singapore, Hong Kong, the UAE and Europe. The implementation of these frameworks will not only accommodate the growth and diversity of the cryptocurrency market, but will also increase transparency and investor protection, which will benefit the industry and its participants. And as they become more powerful, they lay the foundation for investment vehicles such as crypto-ETFs, which increases institutional demand.
With Hong Kong recently debuting retail cryptocurrency trading via licensed exchanges, it may not be long before we see Asia’s first spot cryptocurrency ETF.
Gradually, then suddenly
The domino effect caused by crypto ETFs is not just a transformation – it is a revolution. It is an imminent shift that will redefine the financial landscape. And it’s not just about money. It is about the possibility of a more inclusive, transparent and efficient financial system that paves the way for broader market access.
So, the question is not whether to embrace the cryptocurrency revolution going forward but rather how to do so effectively or risk being left behind. Dominos are falling. It’s time to act!
Calvin Shin He has over 10 years of financial services and investment experience across FinTech and asset management startups. As Managing Director of Hex Trust, Shen works closely with clients globally to provide bespoke blockchain and custody solutions to help them bridge the worlds of digital assets and traditional finance. Prior to joining the Hex Trust, Calvin held various institutional sales and business development roles at leading companies such as PIMCO, Figure Technologies, Deloitte, and BNY Mellon. He holds an MBA from Columbia Business School and a BA in Economics from the University of California, San Diego, and is CFA and CAIA certified.
This article is for general information purposes and is not intended and should not be considered legal or investment advice. The views, ideas and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.