Latest news on ETFs
Visit our ETF Hub to find out more and to explore our in-depth data and comparison tools
Surging demand for cryptocurrency exchange traded funds will push their combined assets above those of precious metal ETFs in North America by the end of the year, according to forecasts by State Street, the world’s largest ETF servicer by assets.
Such a move would install digital token ETFs as the third-largest asset class in the rapidly growing $15tn ETF industry, behind only equities and bonds and ahead of real estate, alternative and multi-asset funds.
“We have been very surprised by the speed of growth of crypto. I expected there to be pent up demand, but I didn’t expect it to be as strong as it was,” said Frank Koudelka, global head of ETF solutions at State Street, who foresaw further rapid growth his year.
“The data is showing more advisers are interested in cryptocurrencies as part of their portfolios,” he added.
On Friday, BlackRock, the world’s largest asset manager said it was including bitcoin in some of its model portfolios for the first time, in the shape of its $58bn iShares Bitcoin Trust ETF (IBIT).
Spot cryptocurrency ETFs were only permitted in US last year but have already amassed $136bn, despite the sell-off in the crypto market in the past month.
Precious metals had a 20-year head start with the $85bn SPDR Gold Trust (GLD), the world’s first physically backed gold ETF, and still the largest, launching in 2004. Yet State Street believes the $165bn held by North American precious metal ETFs in aggregate will be overhauled during the course of this year.
The bank also forecasts that the US Securities and Exchange Commission will fling open the gates to an exotic zoo of digital asset ETFs this year. Fund managers have filed to launch ETFs predicated on a wide range of tokens, such as solana, Ripple’s XRP and litecoin, in addition to the existing ETFs based on bitcoin and ether, the only currencies permitted so far. State Street predicts that funds based on the 10 largest tokens by market capitalisation will be permitted in 2025.
“Besides bitcoin and ether, there are a lot of other coins out there that ETFs can potential solve for,” Koudelka said, referring to the simplicity of owning an ETF, obviating the need for digital wallets and private keys. “It’s democratising crypto.”
The bank also expects the SEC to approve “in-kind” creations and redemptions of cryptocurrency ETFs. This would allow market makers to trade with an ETF using crypto, rather than via cash transactions, avoiding the spreads incurred in converting between crypto and fiat money, as well as improving tax efficiency.
Perhaps more importantly for investors and the fund industry as a whole, State Street also sees movement on ETF share classes of mutual funds — although not until late 2025.
Vanguard’s hitherto unique ability — in the US at least — to launch ETFs as share classes of its mutual funds has helped to propel its rapid growth, as it increases liquidity and tax efficiency and reduces costs via economies of scale.
Although Vanguard’s patent has expired, the SEC has not given the green light to any of the 45 asset managers that have filed to follow suit.
Despite this, State Street’s forecast is that these 45 applicants will be given blanket approval by the SEC, allowing them all to launch ETF share classes simultaneously. However, it predicts that the first launches will not happen until the first half of 2026, given the upheaval at the SEC with an impending change in leadership following the resignation of Gary Gensler.
“ETF share classes will be the regulatory approval race that was the digital asset bonanza of 2023-24,” said Jeff Sardinha, head of ETF solutions, North America at State Street.
Across the ETF market as a whole, the already rapid rollout of actively managed funds will accelerate further in 2025, State Street predicts.
In North America, it estimates that active ETFs will account for 30 per cent of ETF inflows this year, up from 2024’s record 26.7 per cent. It believes growth will be led by fixed-income funds, in part as more investors seek risk-managed exposure to the asset class.
“Active fixed income will come close to parity with passive fixed income net flows in 2025 due to both increased adoption of active fixed income and the reallocation out of passive fixed income and to buffer/defined outcome ETFs,” Sardinha said.
Extending its crystal ball-gazing slightly further into the future, it sees the assets of US active ETFs in total tripling to $3tn within the next three years.
State Street also foresees solid growth in active management in the European ETF market, with a flurry of new entrants expected to help lift active’s market share from 7 per cent to 10 per cent.
Overall, it expects European ETF market assets under management to rise by at least 25 per cent to $2.8tn this year, spurred by greater retail adoption, although that would only be in line with last year’s growth rate.
Elsewhere, State Street predicts that the $506bn Chinese ETF market will overtake the $573bn of Japan to become the largest in the Asia-Pacific region, with assets topping $700bn.
This changeover would largely be driven by the actions of official bodies, with the Bank of Japan having ditched its quantitative easing programme, which included buying domestic equity ETFs, while the authorities in China are periodically trying the same playbook.
Koudelka also foresaw strong inflows in Taiwan, where ETF penetration is higher than anywhere else in the world. Taiwan’s $196bn of ETFs already represent 66 per cent of the country’s total investment fund assets, figures Koudelka expects to rise to $250bn and 75 per cent by the end of the year.
Last year the bank claimed success with 17 of its 19 predictions, only erring by overestimating growth in South Korea and in erroneously forecasting the first closure of a US spot bitcoin ETF.