Recently, Hashdex’s Head of Product Dramane Meite was interviewed by Swiss newspaper Le Temps. The conversation covered a wide range of topics, including his views on the bitcoin ETF launches in the US, how politics is shaping crypto’s future, and what products may be in demand going forward.

Following is a summary of the interview, which was published August 25, 2024. 

 

Eight months after the launch of spot Bitcoin ETFs, what is your assessment?

With hindsight, it’s been a great success, with more than $50 billion invested in these ETFs in the United States. This total was reached thanks to the increase in the price of Bitcoin since January (approximately +37% since January, editor’s note) and net inflows exceeding $17 billion over the last eight months. 

 

How can these numbers be explained?

ETFs have captured underlying captive demand from investors wanting products that are regulated, listed, and issued by trusted players. But I think we are still at the beginning of the buying cycle.

 

Why?

Current purchases are primarily driven by retail investors, who can easily access physical Bitcoin simply by buying a share of a regulated fund without needing an electronic wallet or an account on an exchange platform. Hedge funds are also very active, playing on small price differences between the spot and futures markets. This means that wealth management players and institutional investors are not yet really involved. This will be an important vector of demand in the future.

 

What has been the effect on the price of Bitcoin?

The price has increased since January, but the question remains whether it resulted from the new assets under management or if the positive price dynamics attracted the assets. Our analysis is that these new ETFs created demand that didn’t exist before, from buyers who didn’t hold any crypto before the launch of these spot ETFs. Faced with this demand shock, we know that the supply of Bitcoins is limited to 21 million, with a known programmatic inflation rate. The amount of Bitcoin produced through mining, when a block of transactions is validated on the blockchain, will continue to decrease at a rate known from the outset. The result is positive price performance. The same dynamic applies to Ethereum, the second-largest crypto asset in terms of market capitalization. Ethereum spot ETFs began trading on July 23. Because we also have new demand for Ethereum via these ETFs and its supply is limited—it can even be deflationary.

 

What effect did last spring’s halving, which reduces the amount of Bitcoin added to circulation, have? 

Currently, miners who validate a block receive 3.125 Bitcoins, compared to 6.25 before this halving and 50 in Bitcoin’s early days. The next halving is expected to take place in 2028.

This year’s halving has shaped conversations about what Bitcoin is, which is very positive. Historically, it’s been observed that a halving doesn’t necessarily produce an immediate effect on the price. It sometimes takes 3 to 6 months to see a positive impact. One hypothesis is that many participants anticipate the halving, and new demand only appears 3 to 6 months later, driving the price up. However, we’ve observed two novelties in the context of this halving: First, the way to invest to take advantage of it was better understood, so more people bought in advance this time compared to 2022 or 2016. And second, the spot ETFs created new demand.

 

Will we see the launch of new spot ETFs for Bitcoin or other cryptos?

So far, the SEC has only allowed spot ETFs for Bitcoin and Ethereum. The level of competition among asset managers that already exists sets the bar very high for potential new entrants into this market. An ETF gives access to an asset, and it’s difficult to offer something more than existing products. A new entrant would need to have an advantage in terms of distribution or another area. But we think other products will eventually be launched in the United States.

 

What kind of products?

Our investment thesis is that crypto is not limited to Bitcoin or Ethereum but represents new technology and a new asset class. To invest in new technology, you need to buy the market, and there are no index strategies to replicate the crypto market. Innovation in the United States will likely focus on solutions that provide market exposure rather than just individual asset access.

 

Ethereum spot ETFs have not seen the same success as those on Bitcoin. Why?

As with Bitcoin, several dynamics are at play. Grayscale’s product, which was close to $10 billion in assets before the launch of spot ETFs, lost about $2.3 billion. The other Ethereum ETFs, on the other hand, recorded positive inflows. Overall, inflows reached $2 billion, which translates to net outflows of about $300 million at the market level, even though some players have succeeded with new products.

 

Do Ethereum ETFs attract different investors than Bitcoin ETFs?

The investment thesis for Ethereum is different from that of Bitcoin, so they broaden the range of investor interest. Bitcoin is viewed by many as an emerging store of value, a kind of digital gold, which allows hoarding. Ethereum is a technology, a protocol, that enables building a decentralized economy. It’s much closer to an investment in the early days of the internet. Investors may be more sensitive to the Ethereum narrative than the Bitcoin narrative. But the former is much smaller than the latter (about $320 billion in market capitalization versus $1.2 trillion, editor’s note), and it’s also generally less well understood. Still, we expect around $6 billion to be raised in the first year by Ethereum ETFs in the United States.

 

Trump talked about including Bitcoin in the US monetary reserve, and the Democrats are also quite favorable. Is this simply an electoral maneuver to gain votes or donations during the campaign?

That crypto is part of the political conversation, especially coming from presidential candidates in the United States, is a positive development. Trump has made promises and is positive about the asset class. It’s a big step forward compared to a year or 18 months ago when there were questions about whether the SEC would ban cryptos or Bitcoin. This has created an opening. Trump has forced the Democrats to have a slightly more constructive view on the subject. Democratic lawmakers are considering proposing a new alternative. Of course, we are in the midst of an election, so we will have to see what really happens afterwards.

 

For Bitcoin to become part of the US monetary reserve, a fundamental change in approach would be necessary. We’ve seen how the SEC slowed down the launch of spot ETFs on Bitcoin. Do you really believe it?

At this stage, the statements are very vague—we still don’t know how this could work in practice. But talking about a reserve means there is a certain acceptance of the idea of Bitcoin and cryptos, that they are part of what is allowed and normal. Whether they are used as a monetary reserve by the US government is almost a secondary question. But certainly such a move would make many more investors comfortable with the idea of buying an ETF.

 

 

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