ETF Edge - Crypto collapse and ETFs 2/9/26

Episode Date: February 9, 2026

The “tokenization of everything” was supposed to be a huge driver of the ETF industry in 2026. Now, maybe not?        Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge Podcast is sponsored by InvescoQQQ. Let's rethink possibility. Invesco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange-traded funds, you're in the right place. Every week, we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors.

I'm Mackenzie Sagalos, in for Dom Chu. Digital assets and related technologies were supposed to be a major area of growth for the the ETF industry in 2026. But the recent crypto crash has shaken that assumption. Here's my conversation with Matt Hogan, CIO at BitWise Asset Management, and Will Rine, founder and CEO of Granite Chair. Let's just start with the broad overview from both of you. Assets under management fell to $130 billion. Its lowest level since March of last year, I'm talking about those spot crypto funds.

We've seen historic stretches of net outflows. Matt, I want to start with you first. Take us inside the sell-off. What's driving it? Yeah, absolutely. You know, the interesting thing about your question, McKenzie, is it's not the ETF investors who are driving the sell-off. Assets are down, but most of that is price appreciation, right? Bitcoin is down more than 50% from its October 2025 peak. We've seen a handful of outflows, maybe $7 billion, but the vast majority of ETF investors show they're here for the long haul.

The people who have been selling are mostly sort of OG the original crypto investors. Remember, where they own most of the asset, they've been accumulating it over 15 years, and they've been trimming their positions a little bit, not in mass, but a little bit. And that's what's been driving this pullback. Now, Will, roughly 40% of the spot Bitcoin ETF holders are underwater right now. They need Bitcoin to go up roughly 50% in order to make themselves whole. How are you, working with some of your customers? Like, what is the general sentiment right now with respect to how the ETFs are trading? Is it just, are they people hanging in there to break even, exiting those positions? I think that there's a lot of negative sentiment out there, and actually probably

the most negative that I've seen in quite some time. And it's tough. It's tough to be a Bitcoin investor or a crypto investor right now when you look at the price of gold going through $5,000 an ounce, other assets appreciating to all-time highs. And I think the precious metals thing has really caught crypto investors sort of off guard, this is not supposed to happen. You know, gold's not supposed to go to all-time highs. And crypto sort of doesn't react like this. And so I think for a lot of people, the sentiment is negative. And therefore, we've seen that, you know, manifested in, you know, online, etc.

You've certainly seen this break in the digital gold thesis for Bitcoin the last few weeks as gold surges to all-time highs. Another dynamic that I'm trying to square, why do we almost never see dip buying in the ETS? It almost always tracks the price of Bitcoin or Ethereum. Rarely do we see ETF flows break momentum in the markets. Walk me through this. Matt. Sure.

Yeah, I think there are two aspects going on. You actually do see if you look close enough at the flows, you can see that some of the providers like Bitwise, which serve primarily financial advisors, do get inflows that are counter-trend. We had significant inflows across the suite of all. of our products last week because our financial advisor investors were buying the dip. What covers it over is that ETF server-wide variety of audiences. So often when you see those outflows, those

are coming from hedge funds or traders who are also participating in the ETF. So it's really a tale of two sides. When I speak to financial advisors, they are looking at this more as an opportunity than a risk. Again, we continue to see inflows across the full suite of our products at BitWise. And I think that's reflective of these sort of two markets, the fast money market who are investing for the next month and the people who are investing for the next four or five years. You know, part of the thesis and speaking to analysts was the fact that these spot ETFs, they spot crypto ETS of the last two years really help put a floor under the price of Bitcoin. But it seems as though in the last six months they're not providing that same support. And obviously we can see overall fund flows into your point, Matt, that can kind of cover up who's buying and who's selling. But are there any pieces of information that you're waiting to see in those 13Fs?

Any specific hedge fund moves that might explain the market action we've seen? I put that to either one of you. Yeah, I'm happy to jump in there. There's certainly a lot of chatter about whether we'll see hedge funds that built big positions at the end of Q4, who maybe have wanted to unwind those positions early this month. But of course, the 13F data is significantly delayed. I think there's aspects of all of it. what I would point to again is I do think there are long-term investors. I think the ETF flows have

buoyed the price. If this is a full-blown crypto winner similar to 2018 or 2022, in those crypto winners, Bitcoin were traced 77 to 85%. Again, we're down about 50, 52% now. That delta may be explained because the ETF investors were buoying the price. I know it's still down substantially, but it's less compared to previous bear markets. And I think if we stabilize here, we would note that the ETFs were, in fact, that stabilizing force, just not enough to keep the price at all-time highs at all times. Well, let's talk about the wider ETF book that you have

because part of the narrative that I hear from analysts is that this depressed crypto trade might have to do with the fact that interest is migrating to prediction markets and zero-day options. And you also represent ETFs that look to get. get investors a wider set of exposure to the AI trade. Talk to me about where you're potentially seeing customers move their funds. Yeah, that's right.

So I think that, you know, with, there's never been, you know, as many ETFs available as there are in the market today, and therefore there never been as many investment options for people to choose from. And so crypto does have all sorts of competition from different asset classes and different ETF ideas. One of the big ones at the moment is what I call the retailization of institutional strategies. So particularly using options, for example, to generate yield. So we have a series of products in our yield boost family, and they can do different things from generating high amounts of yield to providing downside protection and other strategies, which previously were only

really available to institutional investors. And that's something that's happening, not just regular stocks and bonds, but with crypto as well, where people can now trade options on crypto ETFs, et cetera, packaged through the ETF wrapper. And that's something that I've wondered. Initially, straight out the gate, we saw a lot of these ETF applications focus on the price of the spot price of these different crypto tokens, and then it moved into having ETFs tied to the derivatives markets, and then leveraged bets, and then combining different tokens into this same, wrapped by the same ETF. Where is the most interest right now?

with respect to what investors want to get exposure to? Has it moved beyond wanting an ETF tied to the spot price of Bitcoin, for example? I think it's a little bit like the ETF industry as a whole. The majority of the interest will still be in the spot Bitcoin or the core products, but increasingly people will want different ways, different adjacencies to play that, whether they're yield-seeking, whether they want downside protection, whether they want diversification, blending crypto with other assets. So it's a little bit like the ETF industry itself, where the vast majority of assets will be concentrated in the biggest core index funds.

But increasingly, people are really interested in active strategies and leverage and options and other things at the satellite. Matt, same question to you, but from the bitwise lens, where are you seeing the most investor interest in terms of your products? Yeah, I'd agree with Will that there is interest in these sort of derivative adjacent products. We run our own suite of option income producing ETFs writing against crypto stocks, etc. I think the next major wave of crypto interest is actually going to be diversified index funds. If you look at things like equities or bonds, as well mentioned, the vast majority of assets are in diversified index funds. An unusual thing about crypto is most are in single asset products like Bitcoin ETFs or Ethereum ETFs. You know, we have the first crypto index fund and largest crypto index ETFs.

BITW. I think you're going to see a lot of investors migrate to that as crypto just becomes a normal part of the asset market. Right, we use indexes in stocks, in bonds, in real estate, in much of commodities. I think we're going to use it in crypto as well. So we're seeing interest on that side too. Quick question just about the staked ether ETFs. That seemed as though it was this huge, you know, threshold that was crossed when the SEC finally made that possible to be able to earn that yield on your Ethereum in the context of of an ETF wrapped product, something that you couldn't do when they initially launched. Have you, but I feel as though that hasn't shown up in flows. You haven't seen more investment in the ether ETF since that was made possible. But am I missing something?

Are you, are you seeing more investor interest from your customer base? I put that out to either one of you. Yeah, sure. I'll take it first. Will can follow up. We're seeing interest on the Salana side. So our Salana staking ETF, B-Sol, has had strong inflows since it launched. Salana has a higher staking yield than ETH about 7% versus 2%.

So it's a more meaningful differentiation. I think the thing about Ethereum and staking is, of course, it's great to have your Ethereum ETF stake. It's great to earn an extra 1 or 2% a year. But people are investing for it for the base return of Ethereum, right? Plus 100% or down 50%. That's going to overwhelm sort of the staking component. So again, more on Salana where the staking yield is big.

bigger, Ethereum, it's a benefit to be sure. And we're fans of staking. We run a big staking business. But it's more of a marginal difference, because it's only a couple percentage points. I think regarding the flows, it's maybe too early to read too much into the tea leaves of the flows around these specific products at the moment, because there's been a massive drawdown in Bitcoin, Ethereum and other coins. And therefore, from a inflows perspective, it's probably time to take a longer view because

it's just not a momentum of traded market at the moment, which I think a lot of buyers in the space are looking for that recovery to get back in. Thinking ahead to the next catalyst, Morgan Stanley was a first mover almost 18 months ago. Having cleared its army of 15,000 FAs to pitch some of these spot Bitcoin ETFs, they've since filed to launch their own. Is this what we need? More FAs cleared at more banks to start pitching these products in order to open the floodgates to more customers? Is it the banks themselves becoming the issuers? Madam, for you have specific thoughts on that being an issuer yourself? Yeah, I think it's all good. All these doors opening up are good things, right? All four major wirehouses across Morgan Stanley, Merrill Lidge, Wells Fargo, and UBS now allow exposure to certain versions of crypto products. That's going to be helpful for flows.

But in a crypto winner, there usually is no one major catalyst that excites a V-shaped rally. Usually it's a slow bottoming. And the things you mentioned are what builds momentum into the future. If we're looking for a specific catalyst, maybe if the Clarity Act passes in Congress, that will add some bullish momentum. But usually these bear markets sort of die in exhaustion, not in excitement. I would expect it to sort of bottom out slowly. and then things like Morgan Stanley going all in on Bitcoin will be part of what accelerates us when we're on the upside.

I was looking at some of the data, and it shows that outflows are just shy of $200 million, despite the heavy price pressure. And that flow deceleration does historically signal a potential inflection point. How are you reading this, Will? I think Matt put it quite well, which is that if you look at the ETF flows,

it's not really clear that ETF customers are the ones that are giving up on Bitcoin or other cryptos at the moment. The selling has been pretty light compared to the total assets out there. I think this is much more a case that the kind of buyer that's buying Bitcoin and other ETFs on the crypto side is more institutional, more financial advisor base. The amount they hold in the portfolio is probably very small. And therefore, they perhaps can, whether the volatility or at least are comfortable with this kind of activity because they're holding for the long run.

There's something that I've been thinking about is the entire thesis for Bitcoin was the fact that it was digital gold. It had a capped issuance of 21 million coins. But now the same Bitcoin can be claimed multiple times over, whether that is through a spot or levered ETF, the derivatives market. Have ETFs have wrapping these products, the financialization of Bitcoin diluted the trade? I think from my perspective, yeah, I was going to say, I think there's, I think there's There's definitely something to that. I mean, clearly part of the scarcity argument was that if you just had one way to buy or

access Bitcoin, then therefore that was one dimensional. Now that it's multi-dimensional, you can make a strong argument that the more people involved, the more derivative proxies that are involved, the less that people actually will hold the underlying itself and the less scarce that becomes. But I think you could also sort of say that with other asset costs. classes as well because gold would be in the same boat and it hasn't stopped the price of gold rocketing to prices that perhaps people thought would be inconceivable a few years ago. Matt?

Yeah, I mostly take the other side of that argument. The funny thing about the derivative and paper Bitcoin argument is that no one mentions it when the price is going up. It's only when the market retreats. The way derivatives work is there is a seller for every buyer. So it ultimately boils down into demand for the market. spot price. I think people are looking for one thing to blame for the current retracement in Bitcoin, but there is not any one thing to blame. There is fear of the four-year cycle, there is some

quantum risk, there is fear of Kevin Warsh. Again, in bare markets, all these things are amplified, and the good news gets sort of pushed to the side. There is good news underneath the surface. It's just slow to materialize. So I don't think this sort of financialization of Bitcoin fundamentally changes the scarcity argument. It may change some intraday movements or short-term trading dynamics, but it doesn't change sort of the fundamental fact there are only 21 million Bitcoin. All of that derivative demand has to pass through eventually to the spot market. And that's what happens, really. Okay. Last question for you both. You're both ATF industry veterans. So let's zoom out and consider the industry as a whole now. What do you see is the next big opportunity for the growth of

ETFs in 2026. It doesn't just have to be crypto related, Matt. Is it this or something else entirely? Will kick us off? I think the big trend in ETFs is the one that's been alive for the last couple of years, which is this sort of retailization of institutional strategies. So strategies that were very big, but maybe just accessible to high net worth clients through financial advisors or others now passing their way into the ETF wrapper. So those could be strategies. using leverage, options to generate yield, options to help protect against downside movements. All of these different types of strategies are becoming much more popular as retail investors want access to the kind of strategies that they couldn't get before.

Matt, final word? I actually absolutely agree with Will. That is the direction of travel. Of course, the vast majority of flows will still be into VOO and the plain Benelix. exposures that we all know and love in ETF land. But ETFs are about making institutional strategies available to everyone. I think Will mentioned many of them. I also think you'll see more private shares in ETFs. I'm bullish on that trend as well. So everything that family offices and institutions have been doing for the last 20 years, ETFs are going to crack that open for everyday investors. That's been a great story for ETFs for 30 years. It'll be a good story for the next 10.

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