US Crypto Index ETFs Off to a Slow Start

Two newly launched cryptocurrency exchange-traded funds (ETFs) holding Bitcoin and Ether have seen limited investor interest in their initial days.

The Franklin Crypto Index ETF (EZPZ), backed by Franklin Templeton, has accumulated approximately $2.5 million in net assets since its launch on February 20. Meanwhile, Hashdex’s Nasdaq Crypto Index US ETF (NCIQ) has attracted only $1 million since its debut on February 14.

By comparison, Franklin Templeton’s Bitcoin-only Franklin Bitcoin ETF (EZBC) saw $50 million in net inflows on its first trading day in January 2024, while Bitwise Bitcoin ETF (BITB) secured $240 million on day one.

Similarly, single-asset spot Ether ETFs recorded weak early inflows, drawing around $100 million on their launch day, July 23.

Limited Diversification and Future Plans

The new ETFs aim to provide investors with diversified exposure to the crypto market by tracking an index. However, their current structure heavily favors Bitcoin due to its dominant market capitalization.

Regulatory restrictions limit these funds to holding only BTC and ETH for now, but they aspire to include a broader range of cryptocurrencies in the future.

In October, NYSE Arca applied for SEC approval to list a Grayscale ETF that includes Solana (SOL) and XRP alongside Bitcoin and Ether.

The SEC is reviewing multiple applications for ETFs holding altcoins, and analysts expect a more diverse range of crypto ETFs to gain approval in 2025.

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West Virginia State Senator Chris Rose has introduced the Inflation Protection Act of 2025, which would allow the state’s treasury to invest a portion of its funds into digital assets or precious metals.

Submitted on February 14, the bill enables the West Virginia Treasury to invest in digital assets with a market capitalization exceeding $750 billion, including stablecoins.

At the time of writing, Bitcoin is the only digital asset that meets the market cap requirement outlined in the proposal.

Strategic Digital Asset Reserve and Investment Limits

According to the bill, the treasury can only invest 10% of its total funds into digital assets and precious metals. Additionally, the state may hold these assets on-chain or through exchange-traded funds (ETFs).

Senator Rose’s bill is the latest in a wave of legislative proposals at the state level seeking to create strategic reserves of digital assets as a hedge against currency inflation caused by structural budget deficits.

On January 23, U.S. President Donald Trump established a working group to assess the feasibility of a digital asset reserve for the U.S. federal government.

Since then, several U.S. states have introduced, developed, or rewritten legislation to establish digital asset reserves.

On February 6, Utah passed a bill in the Utah House of Representatives allowing the state treasury to invest in Bitcoin, high-value altcoins, and stablecoins.

The bill has advanced to the Utah Senate, where it must also pass a vote before being sent to the governor for final approval.

On February 6, Kentucky joined the growing list of U.S. states with digital asset reserve bills. The Kentucky bill allows up to 10% of state funds to be allocated to digital assets, including BTC.

Michigan became the latest state to introduce a strategic digital asset reserve proposal with legislation presented by Representatives Bryan Posthumus and Ron Robinson on February 13.

Unlike other bills, Michigan’s proposal does not include specific restrictions on the types of digital assets to be included in the reserve.

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Expanding Digital Asset Investment Options

When asked on the implications of the new ETFs, both firms stated that the new funds would offer increased access into the digital assets space. While noting that its Global Files custody business currently handles only Bitcoin, State Street which is managing $4,1 trillion in assets said that more and more institutional investors are considering both digital assets and products more than spot Bitcoin. The institutional and retail demand for digital assets has ripened since the spot bitcoin ETFs have been launched, although investors are also exploring ways to tap this burgeoning asset class other than through spot bitcoin, State Street said in a June 26 release. “That, we think is where the next level of growth is for the digital asset ecosystem.”

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This new fund was spotted by State Street in a filing with the U.S. Securities and Exchange Commission (SEC) on June 26 registering for the SPDR Galaxy Digital Asset Ecosystem ETF. This ETF would purchase stocks of firms operating in the ‘new economy’ that are involved directly with digital assets, such as exchanges, miners, hardware wallet services, and venture capital firms both based in the U. S. and internationally. There would also be investing in the corresponding futures and spot ETF products. Further, in 2017, State Street filed draft documents to the SEC for its two new funds which will be the SPDR Galaxy Emerging Technology Enablers ETF and the Hedged Digital Asset Ecosystem ETF.

Industry Reactions and Future Plans

It has been received positively by stakeholders in the industry. Regarding this news Viska Digital Assets CEO Dadi Kristjansson posted in his official on June 26 X-post “Crypto is slowly but surely becoming a mainstream asset class. Yet another sign here. Bullish.” Self-directed investors would best benefit from this development, and Nate Geraci, President of the ETF Store said it was ‘noteworthy,’ only that he was expecting State Street not to ignore spot Bitcoin ETF and the prospective spot Ether ETFs.

State Street Bank and Trust is expected to offer the administrative and accounting support to the digital asset ETFs that would be created by State Street Global Advisors (SSGA), and Galaxy Digital. State Street has been operational in the digital asset market since June 2021 by creating a division primarily for digital assets. However, SSGA has not applied for the recent spots of Bitcoin or Ether ETFs in recent past either.

United States located Bitcoin ETFs, some of SSGA’s main competitors, have USD $14 Plus in circulation in the market. The company now handles $4 billion in flows, calculations based on Farside Investor data show, since its establishment five and a half months ago.

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