By Myles Harrison, Chief Product Officer at AMINA Bank
When the first eurobonds were issued in the early 1960s, few financiers at the time could have predicted the scale and adoption of these investment products. Almost 60 years later, the launch of spot Bitcoin (BTC) ETFs has ignited similar intrigue amongst traditional capital markets. While the archetypal investor of eurobonds in the 1960s may have been conservative, or the so-called ‘Belgian dentist,’ the definition of what it means to be a conservative trader has changed dramatically in years since.
The ‘Belgian dentist’ of the 21st century may fasten their focus on fixed asset income products, like corporate bonds. They are unswayed by the mass hysteria following the SEC’s approval of the spot BTC ETF, which collectively traded $13.9B during the initial week of offerings. The general consensus frames crypto as a suitable investment option only for those with massive risk tolerance. Yet the ‘Belgian dentist’ will be convinced, realizing the spot BTC ETF marks a turning point, reshaping crypto as a steady investment option rather than a volatile venture.
Still, the introduction of the spot BTC ETF may not be enough to entice skeptical retail and institutional investors. More steps must be taken to show the conservative investors of 2024 that cryptocurrency is a revolutionary financial instrument worthy of attention. This will again reshape how we define conservative investing, thus redefining the ‘Belgian dentist’ forever.
Spot BTC ETFs are the start, not the finish
BlackRock's BTC ETF inflows rose to nearly $17.01 million USD in the days following the SEC’s approval. More recently, these inflows have climbed to the fifth-highest among all ETFs in 2024, demonstrating a keen interest in these new financial instruments. SEC Chairman Gary Gensler’s post-approval warnings, however, denote a sense of hesitancy, and a strong lack of ‘endorsement for Bitcoin’. The ‘Belgian dentist’ likely shares in his cynicism.
This reluctance is echoed by industry gatekeepers such as LPL Financial Holdings, one of the largest independent broker-dealers in the United States. The company, which caters to independent financial advisers overseeing $1.4 trillion in assets, has cited the performance of due diligence checks to explore the ‘possibility that (BTC) ETFs could be shut down if they perform poorly.’ This example of institutional doubt counteracts the flurry of enthusiasm expressed by supporters of the spot BTC ETF, and could strike fear in the portfolios of retail investors watching from the sidelines.
We may see the spike of interest in BTC ETFs fall to more sustainable levels in the months to come, as gatekeepers such as LPL Financial Holdings assess the applicability of these new products, rather than jumping in head first. During this pivotal time, it will be key for asset managers to reassure their retail and institutional clientele, educating them on the viability of spot BTC ETFs. The ‘Belgian dentist’ will be watching for LPL’s next move, if the twiddling thumbs of traditional finance were not already a deterrent.
Did Europe do it first? Did Europe do it better?
Zooming out of the US and assessing the global context, the Belgian dentist may still be convinced. There are established instances of TradFi-enabled crypto trading instruments already in use. In fact, the Euronext Amsterdam stock exchange listed Europe’s first-ever spot BTC ETF in August 2023, the Jacobi FT Wilshire Bitcoin ETF. The main difference between the new US spot BTC ETFs and those already approved in Europe is the regulatory parameters surrounding them.
In the US, ETFs tend to be more liquid than those in the EU, due to a well-established market and more favorable regulation. The European Union's regulatory framework shields its capital markets from US-domiciled ETFs. As a workaround, the European market has turned to collateralized Exchange-Traded Products (ETPs), providing a structured yet flexible way for investors to engage with cryptocurrency.
European asset managers will pay close attention to the success of the US spot BTC ETFs, which hit a $10 billion milestone in assets under management just one month after approval. The Belgian dentist will be paying close attention too, analyzing the performance of the US ETFs and comparing them to the performance of the EU ETPs, by which cryptocurrency products are enabled. Based on the months to come, the ‘Belgian dentist’ will likely be choosing one or the other.
The crypto converts
Time will also tell of the relationship between cryptocurrency and legacy banks, and how this will influence the portfolios of institutional and retail investors across the globe. Market expectations indicate a potential reduction in interest rates in 2024, presenting more investors, including our ‘Belgian dentist’, with more funds to invest. Simultaneously, other cryptocurrencies will become available to trade through the ETF machine, with Standard Chartered predicting an Ethereum ETF approval in May. The stars may well align for the ‘Belgian dentist’, as more and more opportunities for sustained portfolio diversification and growth emerge from crypto.
The monetary economy is evolving, and with it, the definition of the ‘Belgian dentist’. The conservative trader of 1960 may have scoffed at the notion of a digitized monetary system, let alone adding Ethereum ETFs to their portfolio. Yet the success of the spot BTC ETF demonstrates that times are continually changing. As asset managers complete due diligence, regulators become increasingly supportive of crypto, and the macroeconomic environment shifts to enable more crypto trading, the ‘Belgian dentist’ may see crypto as a safer bet, shapeshifting into a new type of conservative trader.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.