Goldman Sachs enters the bitcoin ETF market as rivals pull back, while one hedge fund bets on miners.

• In the second quarter, Goldman Sachs entered the spot bitcoin ETF market by investing $418 million in bitcoin funds.
• Large investors' equity positions are revealed in the latest read from Wednesday's 13F quarterly filing deadline.
• Filings for the third quarter will reveal the inflows of Ether ETFs, which were launched only last month.

In January, the SEC allowed bitcoin exchange-traded funds to enter the mainstream, giving traditional financial institutions the chance to invest in crypto. Although money has been flowing in, it has been done so in a stop-and-go manner.

Banks and hedge funds with over $100 million in assets were required to submit their second-quarter 13F reports on Wednesday, revealing their investments and transactions during a three-month period.

While the rival reduced its crypto holdings, the company has not yet made a significant impact.

Firms can take their time entering the market as there are plenty of opportunities available. In January, public ETF listings were introduced for bitcoin, and last month the SEC cleared the way for spot ether ETFs, providing investors with access to the second-largest cryptocurrency. These new holdings will be reflected in third-quarter reports.

In the crypto ETF market, the bank made its debut from March to June, investing $418 million in bitcoin funds. Its largest holding is a $238 million stake in BlackRock's iShares Bitcoin Trust. Additionally, the bank owns shares in spot funds from Grayscale, Invesco, Fidelity, and other companies.

Morgan Stanley was the first among the major Wall Street firms to allow its 15,000 financial advisors to pitch clients with a net worth over $1.5 million bitcoin ETFs, specifically those issued by BlackRock and Fidelity. Prior to this, wealth management businesses only facilitated trades if customers requested exposure to new spot crypto funds.

Morgan Stanley reduced its position in spot bitcoin ETFs from $270 million to $189 million, with most of the cuts being due to sales of shares in the Grayscale Bitcoin Trust. The bank now holds the vast majority of its spot bitcoin holdings through the iShares trust.

Grayscale's bitcoin fund and the ProShares Bitcoin Strategy ETF have reported minimal crypto exposure of around $42,000 and $18,000 worth of shares, respectively. The Ark 21Shares fund has nearly $3.6 million worth of spot bitcoin holdings, while the BlackRock and Fidelity funds have around $300,000 and $5.3 million worth of spot bitcoin ETF holdings, respectively.

Most banks attribute the majority of their ETF flows to wealth management clients seeking exposure, rather than a firm decision to hold the assets on its balance sheet.

Hedge funds are adopting a more aggressive investment strategy compared to Wall Street banks.

Millennium Management, which manages $62 billion, now owns over $1.1 billion worth of shares in at least five Bitcoin ETFs, and is the largest shareholder in BlackRock's bitcoin fund, with shares worth more than $371 million, as per its August filing.

The value of shares held by the company has decreased significantly since its May filing. It reduced its stake in BlackRock's fund by approximately half and more than half in Grayscale's.

Capula Investment Management, a top hedge fund in Europe with $30 billion under management, disclosed in a recent SEC filing that it holds more than $464 million in spot bitcoin ETFs, including those offered by BlackRock and Fidelity.

Aside from Point72 Asset Management and Elliott Investment Management, other firms such as Apollo Management, Citadel Advisors, Jane Street, and Fortress Investment Group have also entered the market.

Since January, spot bitcoin funds have experienced net flows of approximately $17.5 billion, resulting in a total asset value of $53.5 billion as of mid-August. Grayscale's fund, which was previously an ETF, has experienced $19.4 billion in outflows since its conversion. However, its new budget product has seen net inflows of $274 million.

As of Tuesday, ETFs holding more than $7.6 billion in crypto assets. Barclays analysts observed a decline in trading volume of spot crypto ETF products compared to spot exchange volumes.

Bitcoin prices have fallen from their March record of $73,000 to under $58,000, despite the new ETF activity and the volatility in broader markets. However, the price is still up more than 30% this year.

"Galaxy Digital chief Mike Novogratz stated on CNBC in May that the crypto markets are strong due to a sentiment shift, with crypto now being recognized as an asset class. He predicted that this trend will continue indefinitely, as it was not the case two years ago when there was significant risk associated with the asset class. He explained that the risk has been mitigated."

Bitcoin mining lures new investors

ETFs aren't the only way investors are playing the market.

In the latest quarter, D1 Capital, founded by Daniel Sundheim, acquired a bitcoin mining position, capitalizing on a change as miners adapt their facilities to cater to artificial intelligence clients. Both crypto mining and AI workloads demand vast amounts of energy.

Nearly $5.4 million worth of, $17.3 million of, and nearly $17.4 million in shares of were bought by D1, which had about $19 billion at the start of the year.

Iris Energy anticipates generating up to $17 million in annual revenue from its AI cloud services.

The combined market capitalization of the 14 major U.S.-listed bitcoin miners reached a record high of $22.8 billion on June 15, according to JPMorgan, which has also invested capital in an ETF of miners and individual companies. UBS has added shares of Bitdeer, Bitfarms, Bit Digital, Hut 8, and more than $5 million in Iris Energy, as per its latest 13F filing.

Sundheim, who was known for his shrewd investments during his 15-year tenure at Viking Global Investors, has since changed his stance on bitcoin. In 2019, he compared Canadian pot companies to the closest thing to a bubble since bitcoin.

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