US Crypto Index ETFs Struggle for Attention in Early Days Post-Launch

Newly launched cryptocurrency exchange-traded funds (ETFs) in the US, designed to hold a mix of Bitcoin (BTC) and Ether (ETH), have faced a slow start in terms of investor interest, according to recent data.

Modest Inflows for New Crypto ETFs

The two newly introduced funds—Franklin Crypto Index ETF (EZPZ) and Hashdex's Nasdaq Crypto Index US ETF (NCIQ)—have seen relatively low inflows since their debut. Franklin Templeton’s EZPZ ETF, which launched on February 20, has accumulated just about $2.5 million in net assets, according to Franklin Templeton’s official website. Meanwhile, Hashdex’s NCIQ, which debuted on February 14, has garnered slightly over $1 million in net assets, as per data from Hashdex.

By comparison, other cryptocurrency ETFs launched in the past, such as Franklin Templeton’s own Franklin Bitcoin ETF (EZBC), enjoyed a much stronger reception. When EZBC launched in January 2024, it saw a robust $50 million in net inflows on its first trading day, according to Statista data. Similarly, the Bitwise Bitcoin ETF (BITB), which tracks only Bitcoin, pulled in nearly $240 million on its first day of trading.

Single-asset spot Ether ETFs also experienced a relatively weaker start when they debuted in July 2024, attracting around $100 million in net inflows on their first day of trading.

Limited Diversification Poses Challenges

The newly launched crypto index ETFs track a blend of Bitcoin and Ether, offering US investors a more diversified portfolio in a single fund. However, despite their potential, the funds have faced limitations due to their restricted holdings. Both ETFs track indexes that allocate crypto assets based on their market capitalization, with Bitcoin dominating the funds’ portfolios due to its massive market capitalization of around $1.9 trillion as of February 21.

Currently, the funds are only permitted to hold Bitcoin and Ether, limiting their diversification potential. Both funds aim to include additional cryptocurrencies in their portfolios once they receive the necessary regulatory approval.

In October 2024, NYSE Arca filed for approval to list the Grayscale Digital Large Cap Fund, a more diversified crypto ETF that includes not only Bitcoin and Ether but also altcoins like Solana (SOL) and XRP (XRP), among others. However, the Securities and Exchange Commission (SEC) has yet to grant approval for funds holding altcoins such as SOL and XRP, which has left many industry participants awaiting future developments.

Future Prospects for Crypto ETFs

While the initial interest in the new crypto index ETFs has been subdued, the growing regulatory momentum suggests that the future for such products could be bright. The SEC has already received a surge of applications for new types of cryptocurrency ETFs, including funds that would hold a wider range of altcoins. Industry analysts anticipate that more diversified crypto ETFs, including those holding assets like Solana, XRP, and others, could receive approval as early as 2025.

As the market for cryptocurrency-based investment products evolves, the hope is that these ETFs will become a more appealing option for institutional and retail investors alike, offering greater exposure to the broader crypto ecosystem. However, for now, the funds’ reliance on Bitcoin and Ether, coupled with limited diversification, appears to have hindered investor enthusiasm in the early days of trading.

Conclusion

The launch of cryptocurrency index ETFs tracking a blend of Bitcoin and Ether has certainly garnered attention, but the slow inflows in the early stages suggest that the market is not yet ready to embrace these products fully. With regulatory hurdles still to be overcome, and the funds’ current focus on Bitcoin and Ether, it remains to be seen whether these ETFs can capture the same level of interest seen by single-asset Bitcoin ETFs in the past. Looking ahead, the approval of more diversified crypto ETFs could reshape the market, offering investors broader access to the growing digital asset class.