Crypto ETFs are on track to overtake precious metals ETFs in North America by year-end, cementing their place as the third-largest asset class, according to State Street. The shift would make digital token ETFs the third-largest asset class in the region’s $15 trillion ETF industry, trailing only equities and bonds and outpacing real estate, alternative, and multi-asset funds.
“We have been very surprised by the speed of growth of crypto,” said Frank Koudelka, global head of ETF solutions at State Street. “I expected there to be pent-up demand, but I didn’t expect it to be as strong as it was.” He cited data showing increasing interest among financial advisers in adding cryptocurrencies to client portfolios.
On Friday, BlackRock, the world’s largest asset manager, announced that its $58 billion iShares Bitcoin Trust ETF (IBIT) would now be included in some of its model portfolios.
The move underscores growing institutional acceptance of cryptocurrency investments. Spot cryptocurrency ETFs, which were only approved in the U.S. last year, have already amassed $136 billion in assets despite recent market volatility. In contrast, North American precious metals ETFs, which have had a two-decade head start, collectively hold $165 billion. State Street expects that figure to be surpassed within the year.
SEC Expected to Approve More Crypto ETFs
State Street forecasts that the U.S. Securities and Exchange Commission (SEC) will soon approve ETFs based on a broader range of cryptocurrencies beyond Bitcoin and Ethereum. Fund managers have already filed applications to launch ETFs tracking tokens such as Solana, Ripple’s XRP, and Litecoin. The bank predicts that by 2025, funds tied to the ten largest cryptocurrencies by market capitalization will gain regulatory approval.
“Besides Bitcoin and Ether, there are a lot of other coins out there that ETFs can potentially solve for,” Koudelka said. He emphasized the simplicity of ETF ownership compared to directly holding cryptocurrencies, which requires digital wallets and private keys. “It’s democratizing crypto,” he added.
The SEC is also expected to approve in-kind creations and redemptions for cryptocurrency ETFs, allowing market makers to trade using crypto assets rather than converting them to fiat currency. This change would reduce transaction costs and improve tax efficiency for investors.
Market Implications and Growth Projections
The rapid rise of crypto ETFs has broader implications for the investment industry. State Street predicts that actively managed ETFs will account for 30% of ETF inflows this year, up from a record 26.7% in 2024. The firm sees active fixed-income ETFs approaching parity with passive fixed-income net flows in 2025, driven by investors seeking risk-managed exposure.
In the longer term, State Street anticipates that the total assets in U.S. active ETFs will triple to $3 trillion within three years. The European ETF market is also expected to expand, with active management’s share rising from 7% to 10%. Overall, European ETF assets under management are projected to grow by at least 25% to $2.8 trillion in 2025, fueled by increasing retail participation.
Asia is also witnessing significant shifts. State Street forecasts that China’s ETF market, currently valued at $506 billion, will overtake Japan’s $573 billion market to become the largest in the Asia-Pacific region. The growth is being driven by government intervention, with Chinese authorities adopting measures similar to those used by the Bank of Japan during its quantitative easing programs. Taiwan is another hotspot, with ETF penetration already at 66% of total investment fund assets and projected to rise to 75% by the end of the year.
Institutional Adoption and Regulatory Shifts
BlackRock’s decision to integrate Bitcoin ETFs into its model portfolios signals a shift in how major asset managers view cryptocurrency investments. While former SEC Chair Gary Gensler warned about the risks associated with crypto, including its use in illicit activities, the Commission’s approval of spot Bitcoin ETFs in early 2024 marked a significant regulatory milestone.
Industry experts anticipate further regulatory shifts. State Street expects the SEC to approve ETF share classes of mutual funds by 2025, a move that could significantly enhance liquidity, reduce costs, and improve tax efficiency. Although Vanguard’s exclusive patent for ETF share classes has expired, regulatory delays have kept other asset managers from launching similar products. State Street projects that the SEC will grant approval to all 45 asset managers that have applied, with the first ETF share classes expected to launch in early 2026.
Competitive Pressures in the ETF Market
The crypto ETF boom is occurring alongside broader shifts in the ETF industry. In Taiwan, ETFs now represent 66% of total fund assets, up from 56.7% a year earlier. This trend has sparked regulatory concerns about the dominance of passive investment vehicles. Taiwan’s Financial Supervisory Commission has urged fund houses to focus on active management and has penalized some firms for aggressive ETF marketing practices.
Competitive pressures are also mounting. Yuanta Funds, Taiwan’s largest ETF provider, recently slashed management fees on its top ETF to as low as 0.05% in an attempt to capture more market share. Analysts predict that such fee wars will intensify globally as asset managers seek to attract investors to their crypto and traditional ETF offerings.
