After a $370 billion market sell-off, crypto ETFs undergo their first significant test.

• Recently launched crypto exchange-traded funds have seen Bitcoin and ether regain ground after falling to their lowest levels in six months on Monday.
• The sell-off was mainly due to a broader market rout, with stocks falling worldwide.
• The current crypto drop differs from previous sell-offs because more investors are at risk due to the recent launch of spot crypto ETFs.

The recently launched crypto exchange-traded funds saw a resurgence on Monday, with and gaining back ground after falling to their lowest level in six months.

Over the past 24 hours, the market cap of all digital tokens has decreased by approximately $370 billion, with bitcoin falling below $50,000 and ether experiencing its largest single-day decline in three years.

The recent sell-off of crypto was mainly due to a broader market downturn, with stocks falling worldwide. However, what sets this sell-off apart from previous ones is the increased vulnerability of many investors due to the recent launch of spot crypto ETFs.

In January, Bitcoin ETFs began trading, and ether funds followed suit in the previous month. This marked many investors' first exposure to cryptocurrency and the associated volatility. According to data from crypto analytics firm Coinglass, ETF holders generally remained invested.

The total net outflows across all spot bitcoin ETFs were approximately $168 million. Notably, the IBIT fund did not experience any redemptions. Monday's outflows were a small fraction of the more than $50 billion market cap of the funds.

More than $48 million was invested in spot ETFs.

Unlike previous cycles, it is now easier to invest in bitcoin through bitcoin ETFs, which are highly liquid and trade around $2 billion a day, according to digital asset analysts at Bernstein.

"We anticipate an increase in wirehouse approvals for Bitcoin in Q3 and Q4, which will enable more asset allocation opportunities," the statement read.

Starting from Wednesday, its 15,000 financial advisors will be able to recommend spot bitcoin ETFs from BlackRock and Fidelity to clients who meet specific criteria, such as having a net worth of over $1.5 million, according to CNBC's report.

Morgan Stanley is the first major wealth management business on Wall Street to allow advisors to proactively suggest a bitcoin allocation to clients.

Others will likely follow due to pent-up demand.

The recent surge in Bitcoin's value has coincided with a significant influx of funds into new spot crypto funds. This trend could intensify as more financial advisors enter the market.

"According to CNBC, Franklin Templeton CEO Jenny Johnson stated in May that there are many firms in a wait-and-see mode, and they haven't yet experienced the second wave. Instead, this is the first wave of early adopters."

Franklin Templeton issues spot ETFs for both bitcoin and ether.

Johnson stated that he believes the next wave will be larger institutions becoming more comfortable with the settled outcome.

As bitcoin gains liquidity, Bernstein analysts predict that crypto will primarily trade based on "macro and election cues" during the third quarter.

The recovery of broader equity markets, driven by a Fed response, is likely to lead to the recovery of Bitcoin and crypto markets.

On Monday, analysts from Barclays pointed out that the trading volumes of ETF products are still significantly lower compared to those on crypto exchanges.

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