How Crypto ETFs Are Shaping the Future of Traditional Investment Strategies

The exchange-traded funds (ETFs) recorded a remarkable growth in 2024. In the United States it has hit a new high of $10.36 trillion. This improvement of 28% over the previous year can be attributed to market appreciation and a significant $1.12 trillion in net inflows as per the recent report by CFRA.

This development links to a trend toward focusing on growth-oriented themes and increasing active management by investors. According to Aniket Ullal, head of ETF research at CFRA, this phenomenon is changing the ETF market, which, for many years, has primarily focused on index-based funds.

Traditional Investors Shift Focus

In the cryptocurrency industry, the launch of spot Bitcoin ETFs in early 2024 became a topic of discussion during the crypto bull market. These ETFs enable traditional investors to invest in crypto markets without holding the asset directly. Moreover, spot Bitcoin ETFs grew popular among institutional and retail investors on the lookout to incorporate BTC as a portfolio diversifier.

Active ETFs dominated the market in 2024, recording 24.6% of the overall inflows. This is a slight increase from the 14.6% share recorded in 2022, thus making active funds the preferred choice. Active ETFs appear well suited to this trend as more investors seek stocks with the potential to post gains above market indices.

One of the most remarkable players in the active ETF category was the Hashdex Bitcoin Futures ETF (DEFI), which gained 109.4% in 2024. Other popular technology-oriented funds that also posted gains include the Roundhill Magnificent Seven ETF (MAGS) and the Defiance Quantum ETF (QTUM).

Despite the rise of active strategies, traditional passive ETFs remain dominant, with Vanguard and BlackRock investing the most share of inflows. The largest issuers of new assets were Vanguard’s SP 500 ETF (VOO), which attracted $115.1 billion, and BlackRock’s iShares Core SP 500 ETF (IVV), with $86.5 billion.

Traditional Financial Institutions Embrace Crypto ETFs

In mid-2024, the SEC also gave its green light to Ethereum spot price ETFs, making cryptocurrency ETFs more legitimate and appealing. These developments followed a chain of existing Bitcoin ETFs already listed on big stock markets. Some of the entrants during the year include ARK 21Shares Bitcoin ETF (ARKB), Bitwise Bitcoin ETF (BITB), and BlackRock’s iShares Bitcoin Trust (IBIT), among others.

With 11 new Bitcoin ETFs launched in January 2024, the competition in the space is intensifying. These options range from funds focusing on Bitcoin investment to those that invest in Bitcoin futures, such as the ProShares Bitcoin Strategy ETF (BITO). These newer ETFs offer investors indirect access to the crypto market without giving the funds direct control of cryptocurrencies.

The increase in approval of crypto ETFs has also attracted the interest of both conventional financial institutions and upcoming firms. Top executives like Fidelity, Grayscale, and VanEck are among the companies that have applied for spot Ethereum ETFs.  This rising interest is due to the ever-growing adoption of cryptocurrency, the opportunities for new investment products, and changing legal requirements.

South Korea and Global Players Eye Digital Asset ETFs

On the global level, cryptocurrency ETFs are not exclusive to the United States. South Korea is considering adding spot digital asset ETFs to spark demand. This move follows political instability in the country and aligns with efforts to modernize the financial markets.

For Jeong Eun-bo, chairman of the Korea Exchange (KRX), it is high time to look for new business opportunities, such as virtual currency ETFs, to revive the sector. Although South Korea once appeared reluctant about the digital assets class, new trends indicate that the country may change its stance. Additionally, Thailand and Hong Kong have adopted their own ETFs.

Moreover, Morgan Stanley, one of the largest asset managers in the United States, is also considering adding digital assets to its offerings through E*TRADE. The firm believes that the Trump administration will increase demand for cryptocurrencies. The Republican president-elect promised to introduce a favorable environment for ‘crypto’ making the USA the global ‘crypto’ capital. By introducing digital asset products to its market, Morgan Stanley aims to benefit from user demand for crypto investments.

With the global demand for crypto ETFs on the rise, large fund managers are preparing to offer them to institutional and retail investors. As more investors invest their money into Bitcoin and Ethereum ETFs in the US market, the outlook for other crypto ETFs remain optimistic due to increasing legal approval and acceptance.

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