Crypto ETP AUM Rise Outpaced Segment’s Price Growth in Q1 — Here’s Why

The assets managed by crypto ETPs rose 67% during the first quarter of 2023, outpacing the sector’s overall market capitalization gains during the three-month span. 

Total assets under management (AUM) in such products totaled $33.3 billion, as of March 31 — up from $20 billion at the end of the prior quarter, according to analysis by digital asset business Fineqia.

Meanwhile, crypto’s market value increased by 50% in the first three months of 2023, from $800 billion to nearly $1.2 trillion. 

In March alone, crypto ETP AUM increased 17% from $28.3 billion, higher than the 11% rise in the segment’s asset prices from nearly $1.1 trillion during the same month.

The research analyzed publicly available data for 160 ETPs — including ETFs and exchange-traded notes, the latter of which are unsecured debt securities that track an index. It also included trusts by Grayscale Investments traded publicly on the OTCQX.

Fineqia International CEO Bundeep Rangar said the price fluctuations of ETPs’ underlying assets impacted their assets under management much more than inflows or outflows.

Data by CoinShares showed year-to-date flows into digital asset investment products were slightly negative, at $19 million as of March 27.  

“During Q1, BTC and ETH ETPs grew exactly the same as the underlying, highlighting no net inflow but at the same time showing how these products have become a reliable exposure to crypto assets, which is perhaps the ultimate goal for its investors,” Rangar told Blockworks.

As for the crypto ETP AUM growth outpacing price increases across the broader crypto market, this was due to the high concentration of bitcoin and ether in such funds. The prices of BTC and ETH increased 71% and 52%, respectively, during the first quarter, Fineqia’s data showed. 

While ETPs holding BTC and ETH jointly accounted for 93% of digital asset ETP AUM, the market capitalization of these two assets make up about 63% of crypto’s market value. 

“The dominance of BTC in the crypto market is about 48%, while in ETPs, BTC represents about 66% of the total market,” Rangar said. “BTC dominance grew significantly during Q1, and given its high weighting among ETPs, its growth outpaced the others.”

Assets under management for Grayscale’s Bitcoin Trust (GBTC) and its Ethereum Trust (ETHE) grew by about $3.3 billion and $710 million last quarter, respectively, according to Fineqia. ProShares’ Bitcoin Strategy ETF (BITO) followed, seeing asset growth of roughly $160 million over that span.

Rangar added that the Federal Reserve’s decision to ease monetary policy in the US has helped crypto AUM growth so far this year following rising interest rates in 2022. He suggested that this has led investors to stray from assets deemed to be risky.

The Fed opted to raise interest rates by 25 basis points in February, and did so again in March. These bumps were smaller than previous hikes of 0.5% and 0.75% throughout last year.  

“With inflation being pared since September and the pace of rate hikes declining over the last few months, investors have brought more liquidity in the markets,” Rangar said. “Digital assets have consequently benefited as top performers.”

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