Mania in First Bitcoin ETF Cools in Canada After Robust Debut

(Bloomberg) -- The huge spike of interest in the first-ever Bitcoin exchange-traded funds is fading almost as quickly as it appeared.

During its first two days of trading, the Purpose Bitcoin ETF (ticker BTCC) -- the first fund of its kind in North America and the first worldwide to be labeled an ETF -- saw almost $400 million shares change hands. On Tuesday, that amount dropped to $17 million.

Although the fund has managed to attract more than $500 million in assets, a roaring start for any ETF let alone one in the much smaller Canadian market, the rapid fade after such a show-stopping debut highlights the fickle nature of investor interest in the latest shiny object, particularly where Bitcoin is concerned.

“The initial surge in interest was evidence of some combination of pent-up demand, investors switching from other means of getting Bitcoin exposure, and the fact that Bitcoin’s price was notching new highs as the Purpose ETF began trading,” said Ben Johnson, Morningstar’s global director of ETF research. “Longer term, I expect volumes will be correlated with Bitcoin’s price.”

Fervor around Evolve Fund Group’s Bitcoin ETF (EBIT) has cooled too, although it was much smaller to begin with, despite launching only a day after BTCC. About $3.2 million shares traded on Tuesday, down from almost $15 million right after its release. The issuer even lowered the price last week on its fund to O.75% from 1%, making it cheaper than BTCC’s 1% expense ratio.

The funds’ debuts coincided with a meteoric rally for Bitcoin, which saw the digital asset rising past $58,000 at one point. But the notoriously volatile digital coin has cooled in recent days, falling to around $43,000 at the end of February before recouping gains again.

“More people might be educating themselves on the product first and getting comfortable before fully investing in it,” said Mohit Bajaj, director of ETFs for WallachBeth Capital. “Some of it is definitely tied to Bitcoin fluctuating, but don’t forget it’s only a few weeks old. It will take time for investors to get comfortable with it.”

The broader tech and risk-asset selloff last week likely contributed to the waning interest, with a surge in bond yields sending the Nasdaq 100 and the S&P 500 down for two consecutive weeks. High-flyers like Apple Inc. and Tesla Inc. have faced difficulties recently, while the reflation trade gains further footing.

“We’ve seen a rollover in a lot of the momentum plays in the market -- not just Bitcoin, but Tesla and tech stocks more broadly,” Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, said by phone. “It seems like for now the wave has crested a bit and now you’re seeing interest come out of these momentum plays.”

But as Bitcoin sets new highs and U.S. regulators weigh approval of a fund similar to the Canadian ones, the clamor for crypto exposure could once again ramp up.

In the meantime, issuers aren’t standing still. Ninepoint Partners LP said Wednesday that it plans to ask holders of its $266 million (C$335 million) Bitcoin Trust (BITC.U) to approve its conversion from a closed-end investment fund into an ETF. The firm cited increased liquidity and a better price to the fund’s net asset value as reasons for the change.

“The fading demand is temporary and more reflective of the price of Bitcoin versus lack of interest in the ETFs,” said Nate Geraci, president of the ETF Store, an advisory firm. “With Bitcoin bouncing back, I expect there will be steady demand for these products moving forward -- albeit, not the feeding frenzy of the first few days.”

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