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Crypto ETFs seeing assets ‘trickle into space again’ after being shunned by investors: Expert

ETF Think Tank Director of Research Cinthia Murphy joins Yahoo Finance Live to discuss the state of crypto ETFs amid the broader crypto market downturn over the past few months.

Video transcript

SEANA SMITH: We want to stick with crypto because this sector has been under a tremendous amount of pressure, of course, stemming from the fallout from FTX's collapse back in November. Our next guest, though, saying that crypto-linked ETFs are performing extremely well so far this year.

We want to bring in Cinthia Murphy, ETF Think Tank director of research, joining us now as part of our ETF report brought to you by Invesco QQQ. Cinthia, it's great to see you here. So certainly, a number of worrisome headlines, to say the least, when it comes to crypto. Yet, we are seeing interest in it, in crypto ETFs. Why do you think that is? And how much interest are we seeing?

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CINTHIA MURPHY: Hi, Seana. Yeah, it's been actually a really surprisingly strong year so far. I mean, we're only two weeks into the year. But crypto ETFs and blockchain ETFs have been like among the best performing ETFs so far this year. So to give you an idea, if you look at some of the Bitcoin futures ETFs like BITO, for example, it's up 25%, 26% so far this year, which is a huge performance if you look at relative to everything else in the market. In the blockchain space, you're seeing funds that are up anywhere between 25% to 50%, which is, again, a huge jump that nobody really saw coming.

And so crypto went from being, like, really under pressure, really oversold, to all of a sudden, we're seeing a pickup in performance, which, of course, today, every day matters. And today, the market started strong. And the segment has really turned down this afternoon already. So it's a volatile space to be in, but the performance has been there. And we're starting to see assets trickle into this space again after a long time of everybody shunning it.

DAVE BRIGGS: Yeah, I do want to circle back to the ETFs, but just looking at the numbers is staggering, really. I mean, we've got Ether up 30% in the last month and Bitcoin price up about 25%. That despite bankruptcy after bankruptcy, headlines like our crew in Davos talking to Nouriel Roubini, who said 90% of crypto is a scam. What do you make of the rise of Ether and Bitcoin, despite all the headlines shock?

CINTHIA MURPHY: It's funny because it's a scam line has been around from the get-go. So it's not new. And I think what's interesting about this space, and like a lot of other parts of the market, is that the assets are really sticky. So if you look at the ETFs in this space, despite last year's performance, where you had some of these funds down 50%, 60%, assets were still there. The outflows overall from the segment, both in the Bitcoin futures, as well as in the blockchain ETFs, is almost nonexistent.

So it is a segment that the investors who bought in, they really bought in for the long run. And they're standing in there, and maybe some of them are dollar cost averaging. And some are really betting on this long-term. So it's a segment to where conviction really rules. And those who are out are out. But those who are in prove that they will stay, even when the market is really under pressure.

SEANA SMITH: So Cinthia, given that, the fact that investors are committed to these funds, you're saying that these assets are very sticky. Do you think we'll see more ETFs come online that are tied to crypto in the future?

CINTHIA MURPHY: It will probably depend on the market environment. I mean, there's no point in launching an ETF in a market environment that is not really conducive to it. So for example, if growth continues to be under pressure, launching a growth related ETF, which blockchain really is, it's tough. You're not going to find the assets right away. There's a lot of competition in the space already.

So I think until the market really gets conducive for this kind of strategy, and you really expand that appetite, we could see more funds come, more innovation come in the space. But right now, you have about a dozen blockchain ETFs. You have about 8 or 10 Bitcoin futures ETFs. So there's a lot of offer there until the market picks up. I think we're probably good.

DAVE BRIGGS: You also feel there might be some opportunity in small cap ETFs. Why so, as we move ahead? And do you have a few names for us?

CINTHIA MURPHY: Yeah, so when it was here, I think last time we talked, it was about a month ago, and we mentioned the surprising bid in small caps, specifically the small cap value, which is interesting if you think that small caps tend to trail and do poorly in a recession relative to large caps.

So a month in from that time we last talked, we're still seeing some of that bid in small cap and small cap value. So it could be part of even explained by this also appetite for Bitcoin and Ether and blockchain, just that kind of risk-on bid that maybe a recession won't be as bad. And if it's not, small caps will outperform because they tend to recover more quickly on an economic growth situation.

So it could be that those folks who are betting that this recession either is not coming or is not going to be as bad as a lot of people are saying, they continue to bet on the segments that are going to be leading that recovery. And small caps will be part of that story. So it remains to be seen if that's going to materialize or not, but it's been definitely interesting to watch.

DAVE BRIGGS: Indeed, it has. Any sense of optimism, we will take it. Cinthia Murphy, thank you so much.