Why Europe is sitting out the Bitcoin ETF party

Bitcoin ETFs? Meh.

Market watchers are not all convinced that the hype around spot Bitcoin exchange-traded funds in the US will make much difference in Europe.

Even though the approval Wednesday for 11 investment firms by the US Securities and Exchange Commission was hailed as a historic moment, investors in Europe have had access to listed crypto products for years now.

And they have remained unpopular.

“I don’t see any big influx of new money into European ETFs,” Ivan de Lastours, crypto and blockchain lead at Bpifrance, the French public investment bank, told DL News before the SEC’s approval on January 10.

European exchange traded products

Bitcoin ETFs will provide easy, and affordable, access to a new generation of digital asset investors, including billion-dollar investment firms.

There is also mounting expectations that BlackRock’s iShares unit, Fidelity Investments, and other stalwarts of the asset management industry will take Bitcoin mainstream.

But European investors approach the capital markets with a different mindset than their American counterparts.

For starters, they tend to be more risk averse. They tend to save cash at greater rates than US consumers. And their retirement systems aren’t as predicated on earning returns in the capital markets.

Top Five Bitcoin ETPs

In any event, European exchange traded products are not a new thing on the continent. Asset managers CoinShares, 21shares, WisdomTree and VanEck, for instance, already offer exchange traded products, or ETPs, that behave like ETFs.

The top five Bitcoin ETPs add up to a fund size of around $2.6 billion. In contrast, Bloomberg Intelligence expects $4 billion worth of inflows for the 11 newly approved Bitcoin spot ETFs on the first day.

‘We have great products, but not a good market.’

—  Ivan de Lastours

The ETC Groups’ Bitcoin ETP has a $1.3 billion AUM market value, according to its website. Its product carries the heaviest load of Bitcoin ETPs funds in Europe.

Following the SEC’s spot Bitcoin ETF approval, the ETC Group announced a new ETP which tracks 20 leading digital assets.

“We have great products, but not a good market,” de Lastours said.

Less exposure

One reason is the difference in financial culture between the US and Europe.

“In Europe, people generally have less exposure to financial products like ETFs,” de Lastours said. “I don’t feel a huge appetite because there is a financial culture that makes ETFs very niche.”

For a financial product like a Bitcoin ETF to kick off, “you need a population that doesn’t assume the government is going to help you with retirement,” Eric Balchunas, a Bloomberg Intelligence analyst, told DL News in November as part of a bigger interview.

“We’re gonna get no help from the government [in the US]. So we’ve all been pushed to learn with funds, to shop for funds, to know what costs are,” he said. That’s why investment advisors like Vanguard are successful in the US, he said.

“We’re good consumers of this stuff.” That’s not the case in many European countries, Balchunas argued.

‘US investors will have much cheaper and much safer options for Bitcoin-based security products than EU investors.’

—  Patrick Hansen

For European institutional investors, a Bitcoin ETF may be less appealing because it is a smaller niche than ETFs in general.

When it comes to retail investors, de Lastours reckons users would rather invest directly in Bitcoin rather than through an ETF.

Industry watchers anticipate that 2024 will be coloured by a new crypto bull market. If their predictions become a reality, it may end up piquing the interest of investors, meaning existing products like the ones from CoinShares will likely “win more than the banks,” according to de Lastours.

One reason is because banks have less resources allocated for blockchain in most European financial institutions compared to those in the US, he said.

In any case, European investors will not have access to the US Bitcoin ETFs.

“While it took the US a few years to catch up, if these Bitcoin ETFs are approved as expected, US investors will have much cheaper and much safer options for Bitcoin-based security products than EU investors,” Patrick Hansen, director of EU strategy and policy at stablecoin provider Circle, posted on LinkedIn.

Trillion-dollar institutions

But, not everyone agrees the ETF hype will stop at European borders.

“I don’t think it makes sense to compare any Bitcoin financial products with the ones we’re talking about now — and it really comes down to scale,” Thomas Romain, commercial director of crypto exchange Bitpanda in France, told DL News.

‘Any European bank or financial institution that isn’t ready to adapt is going to be left behind very quickly.’

—  Thomas Romain

That’s because unlike smaller, niche market players like CoinShares or 21shares, the list of US firms given a greenlight from the SEC are “massive institutions with trillions of dollars under management.”

“This isn’t just a US story, it’s the next step in a major shift in the financial industry towards embracing digital assets.”

Romain expects to see new institutional and retail investors follow the reputation of the likes of BlackRock, Fidelity Investments and Grayscale.

“Any European bank or financial institution that isn’t ready to adapt is going to be left behind very quickly,” he said.

With reporting assistance from Joanna Wright.

Inbar Preiss is a Brussels-based regulation correspondent. Contact her at inbar@dlnews.com.