Introduction to Bitwise Asset Management’s Proposal
Bitwise Asset Management, a prominent player in the realm of cryptocurrency investment, has submitted a proposal to the United States Securities and Exchange Commission (SEC) for the introduction of a revolutionary exchange-traded product (ETP). This innovative financial product is designed to give investors exposure to both Bitcoin (BTC) and Ethereum (ETH), the leading cryptocurrencies in market capitalization.
The proposal, which has been filed under Form S-1, is currently pending SEC approval. If successful, this ETP will be traded on the NYSE Arca and aims to allocate its assets based on the market capitalization of both Bitcoin and Ethereum. Together, these two cryptocurrencies represent roughly 70% of the total $3.2 trillion global cryptocurrency market.
Understanding the Bitwise Bitcoin-Ethereum ETP
Matt Hougan, the Chief Investment Officer at Bitwise, highlighted the inherent complementarity of Bitcoin and Ethereum. He stated that “Bitcoin and ether aren’t competitors any more than gold and tech stocks are competitors,” illustrating the distinct roles each asset plays in the digital ecosystem.
Bitcoin is often viewed as a digital store of value and is the most established blockchain, built mainly for monetary transactions. In contrast, Ethereum’s versatile blockchain supports a diverse range of applications, including decentralized finance (DeFi) and non-fungible tokens (NFTs). This unique combination of stability and innovation makes Bitcoin and Ethereum an attractive proposition for investors looking for balanced exposure to the cryptocurrency market.
Bitwise’s proposed ETP will utilize a weighted allocation strategy based on the market capitalization of these cryptocurrencies, ensuring that the investment reflects the current dynamics of the market. With a combined market capitalization of approximately $2.25 trillion, this ETP has the potential to pique the interest of both retail and institutional investors.
Regulatory Landscape and Market Challenges
The approval of spot Bitcoin ETFs earlier this year, coupled with the recent launch of spot Ether ETFs, marks a notable shift in the SEC’s stance toward digital asset investment products. However, a change in SEC leadership is on the horizon in January 2025, as current Chair Gary Gensler is expected to resign. The appointment of a new chair, which may occur under a crypto-friendly administration led by President-elect Donald Trump, could impact future regulatory policies.
The SEC has faced scrutiny for its cautious approach to cryptocurrencies, yet the recent endorsement of ETFs linked to assets like Bitcoin, Ether, and Solana has emboldened asset managers to pursue new opportunities. For example, Bitwise has begun preparations to launch its Bitwise Solana ETF by filing to establish a trust entity in Delaware, indicating that an SEC filing may be forthcoming. If approved, this ETF would track Solana, now the fourth-largest cryptocurrency, joining similar efforts by firms like VanEck and 21Shares.
Market Dynamics and Investor Behavior
In 2024, Bitwise has experienced significant growth, with assets under management (AUM) reaching $5 billion by October, thanks in large part to the success of its Bitcoin ETF and the acquisition of Ether-staking provider Attestant. However, the market is not without its fluctuations. On November 26, the U.S. market witnessed a dramatic shift in investor sentiment, resulting in $438.4 million in outflows from spot Bitcoin ETFs after a streak of five consecutive days of inflows that totaled $3.4 billion.
Bitwise’s BITB ETF led this decline, experiencing outflows of $280 million, followed by Grayscale’s GBTC and Fidelity’s FBTC, which saw withdrawals of $158.2 million and $134.7 million, respectively. Conversely, BlackRock’s IBIT ETF managed to resist these trends, securing $267.8 million in net inflows and maintaining its status with cumulative inflows amounting to $31.6 billion. Meanwhile, spot Ethereum ETFs recorded a modest $2.8 million in net inflows, buoyed by robust trading activity of $711.2 million.
Overall, broader crypto markets experienced record weekly inflows of $3.13 billion, driven primarily by Bitcoin’s dominance, which attracted $3 billion, alongside growing interest in altcoins such as Solana, which saw $16 million in inflows.