Crypto Funds Could Jump From $50 Billion to $650 Billion in Assets in 5 Years

Their optimism, laid out in a note on Monday, is driven by several factors. First is the potential approval of a spot Bitcoin exchange-traded fund. Last month, a court said the Securities and Exchange Commission erred when it rejected a bid by Grayscale Investments to convert the
Grayscale Bitcoin Trust
(ticker: GBTC) into an ETF.

The SEC has until mid-October to challenge the ruling; at around the same time, the agency will also have to decide to approve or postpone applications from other fund companies that would pave the way for their own Bitcoin products.

If the SEC stops fighting, the Bitcoin funds could come to market as soon as early next year, and the Bernstein team expects the ETFs to get about a 10% share of the market capitalizations of Bitcoin and Ether, the second-largest token.

“Crypto financial adoption follows hype cycles and we expect a hockey stick adoption, with 2024 as the landmark regulatory year for approval of ETFs,” the analysts wrote.

Lately, there have been signs that some institutions are warming to crypto, even as retail traders have all but disappeared on trading platforms like
Coinbase Global
(COIN).

In addition to Grayscale, BlackRock (BLK), Fidelity,
WisdomTree
(WT), Invesco (IVZ), and others have applied to launch Bitcoin ETFs. Some fund companies are also seeking to launch products that hold spot Ether or Ethereum-linked futures.

Companies including
PayPal Holdings
(PYPL) and Visa (V) have launched tokens as well or announced partnerships that would deepen their ties to the crypto industry.

But regulation is still holding back many institutions. SEC Chair Gary Gensler, despite the agency’s court losses, still says the crypto industry is rife with fraud and with companies that aren’t in compliance with securities laws. The agency in June sued Coinbase for operating as an unregistered securities exchange, a charge the company denies.

The industry isn’t getting much help from lawmakers. While there’s a chance bills that would change rules around the crypto industry could clear the House of Representatives this year, there has been little interest in the Senate to pick up the effort.

Despite the lack of legislation, the Bernstein analysts bet the spat of enforcement actions is fading. “The meat of regulatory backlash is done for now, and the Coinbase case will provide further clarity,” they wrote.

Write to Joe Light at [email protected]