ETFs
What will allocations look like in combined Bitcoin and Ethereum ETFs?
After the first combined ETF is filed today, what will other issuers do regarding allocation to BTC and ETH?
As the first BTC/ETH combo ETF has been filed, what can we expect from future allocations?
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Posted June 18, 2024 at 3:57 PM EST.
On Tuesday, as the market eagerly awaits the full approval of Ether spot ETFs, Nasdaq deposit for a combined Bitcoin and Ethereum ETF. This new ETF, managed by Hashdex, will allocate 70.54% to bitcoin and 29.46% to ether. These allocations are based on the relative free float market capitalizations of bitcoin and ether.
But is this the only way the newly combined ETFs will be allocated to bitcoin and ether? And what impact could this have on the market?
Learn more: There are now 11 Spot Bitcoin ETFs. Here is the one that suits you best
Why Blended ETFs Matter
The introduction of combined BTC and ETH ETFs is important for several reasons. First, these ETFs provide investors with diversified exposure to the cryptocurrency market without having to choose between Bitcoin and Ethereum. This diversified approach could attract more capital flows, particularly from more conservative investors, as it mitigates the risk associated with investing in a single asset. By holding both BTC and ETH, investors can benefit from the possible benefits of both major cryptocurrencies, potentially stabilizing returns compared to single-asset ETFs.
The structure of the combined ETFs could also impact the prices of BTC and ETH. As these ETFs gain popularity, increased demand for the underlying assets could drive up their prices. If there are ETFs that allocate more to one asset or another, this could be positive for that specific asset.
Nate Geraci, president of the ETF Store, says the success of commodity ETFs suggests that combined crypto ETFs could find a wider audience “due to the novel nature of the category.”
“Some investors and advisors will prefer a diversified approach to an emerging asset class like crypto rather than trying to pick winners and losers,” Geraci told Unchained. He believes that once additional crypto assets become available in an ETF wrapper, such as SOL or XRP, we can expect to see various index-based and actively managed strategies.
Allocation Strategies
Geraci believes that, as with the Hashdex ETF, the split should reflect their respective market capitalizations. “Ether is currently valued at around a third of the market capitalization of Bitcoin. I think that’s a reasonable approximation of what the Ether ETF spot demand will look like versus the Bitcoin ETF spot demand,” Geraci told Unchained. And despite the lack of staking options in the initial Ether spot ETFs, Geraci believes this will not significantly deter demand.
However, Geraci also expects the emergence of multiple types of combined BTC and ETH ETFs, including market cap-weighted and actively managed products. “Market cap-weighted products will hold BTC and ETH in the proportions described above. Actively managed ETF holdings will be dictated by the manager and prevailing market conditions,” he notes, indicating potential variability in allocations based on market dynamics.
Scott Johnson, general partner at Van Buren Capital, suggests that combined BTC and ETH ETFs could feature a 50/50 split or follow some type of index-weighted approach. “To the extent that these come online in the near term, you might see a 50/50 allocation or some type of index-weighted allocation,” Johnson told Unchained via email.
Looking at other markets, like Canada, where crypto ETFs have been available for several years, provides valuable insight. For example, the Evolve Cryptocurrency ETF is weighted by market capitalization and rebalanced monthly. According to the latest data, this ETF allocates 71.90% to Bitcoin and 28.10% to Ethereum.
Meanwhile, CI Financial offers the CI Galaxy Multi-Crypto ETFan actively managed ETF, and uses a rules-based momentum signaling strategy, allocating approximately 50/50 to BTC and ETH.
Learn more: Bitcoin ETFs Explained: What Are They and How Do They Work?