Bitcoin ETFs Have Arrived. Here’s Who Stands to Get Rich

US regulators have approved a new breed of financial product that will give people a way to invest in bitcoin through their brokerage for the first time, as if it were a regular stock.

A selection of financial institutions, including household names like BlackRock and Fidelity, have been given permission by the US Securities and Exchange Commission (SEC) to launch spot bitcoin exchange-traded funds (ETFs), whose value tracks the price of bitcoin. The approval comes after a peculiar incident on January 9, in which a hijacker used the agency’s X account to announce the ETFs prematurely, leading to market chaos and forcing the SEC to publish a retraction.

The arrival of the spot bitcoin ETFs has been celebrated among investors as a source of new demand for the asset—now available in a more accessible format—that could push up the price. Yet a significant portion of the financial upside will be captured behind the scenes, not in the open market.

The ETF issuers will take a management fee, as a percentage of the sum people invest. One layer deeper, though, another subset of companies—intermediaries that provide the plumbing necessary for a spot bitcoin ETF to function—stand to earn big. These firms are responsible for storing bitcoin on behalf of the issuers, as appointed custodians, or creating new ETF shares and cashing in existing ones, in the case of authorized participants, or APs. The job of another set of third parties, market makers, is to help price ETFs accurately and ensure that trades run smoothly in the public market.

The pool of firms that perform these trading-related functions is limited, says James Seyffart, ETF research analyst at Bloomberg Intelligence, partly because of the amount of cash required to deal with large quantities of assets flowing in and out the door. With respect to custody, the Venn diagram of willing and qualified candidates is restricted further by the challenges of handling bitcoin, which sits on entirely different technical rails than regular shares. “It’s a whole different area,” says Seyffart.

As such, the spot bitcoin ETF issuers will share a small group of service providers, at least at launch. Between them, crypto exchanges Coinbase and Gemini will provide custody services for practically all the new ETFs. Only JPMorgan, Cantor Fitzgerald, Virtu Financial, and Jane Street, all multinational financial services firms, have signed on as APs to date.

The revenue won by these players will scale with the popularity of the ETFs; the more money invested and the more frenetic the trading activity, the more there is to be made below deck. The opportunity is “enormous,” claims Brett Tejpaul, head of institutional services at Coinbase, who predicts trillions of dollars will eventually flow into US spot bitcoin ETFs. It may be a “slow and building process,” but could represent a “giant expansion of the pie,” he says.

In the form of bitcoin futures ETFs, whose value is correlated with the price of the crypto token, US residents have had access to a loose proxy for bitcoin investment since 2021. But spot bitcoin ETFs are the closest thing to investing directly, without taking on the risk associated with storing crypto manually.