Bitcoin ETFs Too Small to Affect Broader Investment Landscape, Moody’s Analysts Say

The exchange-traded funds will allow better access to bitcoin through regulated entities and draw institutional investors, but the crypto is still a very small asset class, CoinDesk was told.

AccessTimeIconJan 11, 2024 at 5:31 p.m. UTC
Updated Mar 8, 2024 at 7:47 p.m. UTC
  • Analysts at credit-rating agency Moody's say the approval of bitcoin ETFs is a "watershed" moment for the crypto industry, likely to draw institutional interest.
  • The impact on the broader investment landscape may be minimal because bitcoin is a small asset class.

Bitcoin exchange-traded funds (ETF) will give U.S. investors better and more regulated access to the crypto asset, but they likely won’t have a notable impact on the broader investment landscape, analysts at credit-rating agency Moody’s Investor Services told CoinDesk during an exclusive interview Thursday.

That’s not to say the crypto industry’s joyous reaction to the U.S. securities regulator approving the first batch of spot bitcoin ETFs Wednesday, 10 years after they were first proposed, is unfounded.

"We're not saying that, for bitcoin, yesterday's announcement will not be significant," said Vincent Gusdorf, senior vice president, DeFi and Digital Assets (DFDA) at Moody’s. "It is significant and institutional investors' entry into this market will be a kind of a watershed moment for the crypto industry."

"Bitcoin is a relatively small share of investors’ portfolio, and the approval of the ETF itself does not constitute necessarily a reason to increase this allocation," added Cristiano Ventricelli, vice president, DFDA at Moody’s said.

In recent months, bitcoin prices picked up steadily following 2022’s dramatic market collapse led by the failure of multiple big players in the space, including Sam Bankman-Fried’s FTX. Whether that price trend will continue in the short term depends on "the trajectory of other monetary policy, and whether we will not see more scandals," from the crypto space, Gusdorf said.

Bitcoin's price experienced some volatility on Thursday, climbing as high as nearly $49,000 but falling to $46,000 within the space of about 90 minutes. However, the asset's price has more than doubled over the past year, according to CoinGecko.

"In the medium to long term, we see it as a positive development that will increase the price discovery and the stability of bitcoin. And it will probably increase the allocation of some institutional investors to this asset class," Ventricelli said.

Moody’s doesn’t rate bitcoin and can’t really comment on whether it’s a significant credit risk, but investing through traditional players like BlackRock, whose iShares Bitcoin Trust (IBIT) were among the ETFs that started trading today, according to Gusdorf. But buyers can "remove some of the risks that could be associated with a middleman that could have been probably less regulated before the SEC decision."

He warned, however, that bitcoin remains a very volatile investment and that investors should keep this risk in mind when allocating funds from their portfolios.

Crypto x TradFi

ETFs are also not the only way crypto is colliding with the world of traditional finance (TradFi). Gusdorf and Ventricelli said their team has been closely watching developments in the field of tokenization, where blockchain and distributed ledger technologies that power crypto are used for digitizing real assets be they bonds, funds or commodities.

Central banks and big TradFi players have been experimenting with tokenization, with a few already offering tokenized green bonds and other funds.

According to Marat Faritov, assistant vice president of the DFDA unit at Moody’s, the approval of bitcoin ETFs is also positive for other players in the crypto industry, from custody solutions providers to tokenizers.

"For example, now banks will start using those services to enable the solutions so probably will be generating more revenue for all these companies around the crypto space," Faritov said.

According to Gusdorf, although crypto is "increasingly less mentioned" at conferences on tokenization, there has been a convergence between the TradFi and crypto spaces. Earlier this month, Gusdorf’s team rated a tokenized fund to be issued on the Ethereum and Stellar blockchains.

"So we are seeing a number of bridges being built between the crypto worlds and the TradFi world here," Gusdorf said.

Edited by Nikhilesh De.


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Sandali Handagama

Sandali Handagama is CoinDesk's deputy managing editor for policy and regulations, EMEA. She does not own any crypto.