The adoption of spot Bitcoin exchange-traded funds (ETFs) is facing a temporary slowdown due to extensive due diligence processes conducted by major trading platforms. According to a recent report from Bloomberg, companies like LPL Financial Holdings, one of the largest independent broker-dealers in the United States, are carefully examining the newly approved Bitcoin ETFs before making them available to their clients.
LPL Financial, which oversees $1.4 trillion in assets, plans to complete its due diligence on Bitcoin ETFs within three months. The company is evaluating various factors, including the possibility of ETF closures if they fail to accumulate significant assets.
“We just want to see how they work in the markets,” said Rob Pettman, vice president of wealth management solutions for LPL Financial. “That can be a very negative experience for the investor, for the financial adviser. It’s also incredibly costly for a firm like ours operationally to help to facilitate that.”
Due diligence is a comprehensive analysis performed before making an investment decision. It involves carefully checking all the facts, and understanding the risks and opportunities.
The Bloomberg report highlights that 253 ETFs closed down in 2023, with an average asset value of $34 million. This includes crypto-tied products such as the VanEck Digital Assets Mining ETF (DAM) and the Volt Crypto Industry Revolution.
As of January 31, all the Bitcoin ETFs approved last month collectively held 656,421 BTC, worth nearly $27 billion at current prices. However, the performance of these ETFs has been impacted by outflows from the Grayscale Bitcoin Trust, which dumped a total of 132,195 Bitcoin after its conversion from an over-the-counter product to a listed ETF.