A back-of-the-envelope estimate of the size of the US crypto ETF market

I'm hearing all sorts of silly projections about how big the U.S. market for a physical crypto ETFs will be, and how their eventual approval will drive new bitcoin demand and pump its price into the stratosphere.

To date, the Securities and Exchange Commission (SEC) has refused to give its permission to a physically-backed crypto ETF. As such, the main way for U.S. investors to get exposure to exchange-listed crypto products has been to buy the Grayscale Bitcoin Trust or Grayscale Ethereum Trust, which are closed-end funds, and lack the many of the nice features of an ETF.

Luckily, we already have a good idea about what market demand for physical crypto ETFs looks like. Canada has allowed these products since 2021. According to the Canadian Securities Administrators (CSA), our version of the SEC, the combined value of all listed crypto financial products was C$2.865 billion as of April. Almost all of that (C$2.289 billion) is comprised of physical bitcoin and ether ETFs, with a small contribution from close-end funds and futures-backed products.

Source: CSA

Applying the rule of 10 to this number, the implied total value of all U.S. exchange-listed crypto products, both physically-backed ETFs, futures-backed ETFs, and closed-end funds, comes out to C$28.65 billion, or US$22 billion. The rule of 10 is based on the idea that Canada's population is a tenth the size of the US's, and since Canadians and Americans are quite similar, just multiply Canadian data by ten to get U.S.-equivalents.

The Grayscale Bitcoin and Ethereum Trusts, worth US$13.7 billion and US$3.5 billion respectively, are likely to convert into ETFs if the SEC allows it, so US$17.2 billion of this US$22 billion in theoretical headroom for total U.S. exchange-listed crypto products is already taken. That leaves another US$4.8 billion in theoretical as-yet unused capacity. 

This is hardly a game changer, folks.

If the eventual approval of physical crypto ETFs unleashes US$4.8 billion in potentially new crypto demand from U.S. investors, that is tiny relative to the US$900 billion combined value of bitcoin and ether. And keep in mind that this US$4.8 billion may not necessarily represent new investor buying power, since the introduction of physical ETFs could simply cannibalize existing demand by pulling crypto holders away from storing crypto on exchanges like Coinbase, or from owning it physically.