What is a Bitcoin ETF?
A Bitcoin ETF, also called an exchange-traded fund, functions as an investment fund tracking Bitcoin’s price. Unlike cryptocurrency exchanges, it operates on traditional market exchanges. This fund lets investors monitor Bitcoin’s price movements through futures contracts, granting exposure to Bitcoin’s price without holding the cryptocurrency directly.
However, Bitcoin Futures ETFs have their challenges and risks. They tend to be volatile due to factors like roll premiums and management fees influencing the ETF’s value. Additionally, futures ETF prices typically differ from actual Bitcoin prices, potentially yielding fewer returns for contract holders compared to actual Bitcoin holders.
Nevertheless, the Proshares Bitcoin Strategy ETF (BITO) received SEC approval in October 2021, marking the first official Bitcoin-linked ETF on the New York Stock Exchange.
Now, let’s delve into Bitcoin Spot ETFs
Spot ETFs are distinct as they directly hold actual Bitcoin as their primary asset, keeping track of its prices. Investors in these funds might be more exposed to Bitcoin’s price swings since they have a direct stake in the asset itself, not just a contract.
The journey towards a spot Bitcoin ETF has been lengthy – over a decade since the initial application. Recently, there has been a surge in efforts to make these funds available to everyone. Grayscale, a crypto asset manager, engaged in legal battles with the SEC after repeated rejections of its spot fund applications in 2022. After a year-long fight, the D.C. Court of Appeals sided with Grayscale.
More recently, heavyweights like BlackRock and Fidelity, managing colossal assets (BlackRock over $8.5 trillion and Fidelity over $4.5 trillion), have applied for their spot Bitcoin ETFs. This move is bringing the concept into the mainstream financial landscape.
In fact, there’s a ton of optimism for the ETF.
BlackRock reportedly has $2 billion ready to roll for the spot ETF launch in the first week. This intel came from Vaneck’s head of digital assets research and a Bloomberg ETF analyst, who separately backed up this claim.
The ETFs that were recently approved include:
- BlackRock’s iShares Bitcoin Trust
- Grayscale Bitcoin Trust
- ARK 21Shares Bitcoin ETF
- Bitwise Bitcoin ETP Trust
- WisdomTree Bitcoin Fund
- Invesco Galaxy Bitcoin ETF
- VanEck Bitcoin Trust
- Franklin Bitcoin ETF
- Fidelity Wise Origin Bitcoin Trust
- Valkyrie Bitcoin Fund
- Hashdex Bitcoin ETF
What happens now that it has been approved?
The green light for a Bitcoin spot ETF matters significantly as it could potentially alter Bitcoin’s demand, tightening its availability and driving up its value.
Brings in the big players
Attracting major traditional finance players into the crypto space could be a crucial outcome of Bitcoin approvals. This could be attributed to the vast contrast between the crypto market cap and that of traditional stocks and bonds. The total cryptocurrency market is valued at around $1.73 trillion, with Bitcoin alone holding a market cap of $857 billion. In contrast, the global stock market is valued at approximately $100 trillion, and the total global bond market surpasses $133 trillion.
This highlights that the majority of “big money” remains invested in traditional assets, with conservative, risk-averse institutional players primarily holding significant cash and assets.
Encouraging them to explore crypto is a primary aim.
Martin Leinweber, a digital assets product specialist at MarketVector Indexes, presented a hypothetical scenario suggesting that if financial advisors overseeing approximately $30 trillion in U.S. assets allocated “just 1% of this amount” into spot Bitcoin ETFs, “it would translate to $300 billion invested in bitcoin.” And that’s a game-changer.
Unfortunately, crypto is often perceived as a risky investment and not considered a noteworthy asset. This is why the move towards a Bitcoin spot ETF is considered a significant step in gaining institutional credibility for Bitcoin. An ETF could legitimize Bitcoin in the eyes of traditional investors and might result in trillions of dollars added in value in the long run.
Bitcoin becomes more liquid and accessible.
Spot ETFs aren’t limited to big players. With a spot ETF, purchasing Bitcoin could be much simpler for regular individuals. While it’s not overly complicated for investors to buy Bitcoin through wallets, it’s not ideal for general investors accustomed to brokerage accounts rather than crypto wallets.
Having an ETF accessible in the stock market by a reputable firm like BlackRock makes it easier for regular individuals to invest in Bitcoin. These ETFs might even allow buying just one share without requiring a significant investment. With more people entering the market, prices could stabilize, making it easier to determine Bitcoin’s true value.
With the ETF’s introduction, Bitcoin might become more affordable for a wider audience. Typically, when more people desire something, like Bitcoin, its price tends to rise.
These ETFs aim to simplify Bitcoin for anyone curious about investing. Therefore, if this ETF gets approval, it could significantly impact the market, making it more accessible for numerous individuals.
Positivity for the crypto market
Approval of a Bitcoin spot ETF could be a game-changer for the entire crypto market. Introducing this ETF might not only boost Bitcoin but also ignite interest in other cryptocurrencies and related technologies like altcoins, DeFi, and Web3 assets.
It’s akin to saying, “Bitcoin’s in the limelight, but check out these other cool crypto tokens too!”
As Bitcoin garners more attention through this ETF, it could accelerate adoption of other digital assets. Furthermore, it might attract significant players like banks and institutions, propelling them into the digital asset space.
Recently, JP Morgan indicated their belief that Ethereum could potentially outperform Bitcoin in 2024.
Shifting the focus onto other cryptos could lead to increased regulation in exchanges, greater involvement of custodians, and opportunities for diverse digital asset sectors to thrive.
This increased interest in digital assets would benefit the entire industry. Therefore, if this ETF gets approval, it might just mark the start of a significant shift in the digital asset realm.
Would the approval of a spot Bitcoin ETF influence Bitcoin prices?
Predicting Bitcoin’s price post-ETF approval is challenging. Experts hold diverse opinions. Some forecasts predict prices ranging between $42,000 and $100,000 following the approval, suggesting stability or significant increases.
However, other experts provide contrasting views.
Brian Evans, founder of venture capital firm BDE Ventures, suggests, “After approval, we might see an initial dip as the market has anticipated these ETF approvals.
However, subsequent capital inflow is expected to act as a positive catalyst for Bitcoin.”
Thus, it’s probably likely to see a slight dip in Bitcoin prices post-approval as holders might opt to sell upon the news. However, in the long run, spot ETFs could incentivize Bitcoin prices to reach higher levels as more investors trust Bitcoin and crypto in general.
Final thoughts
The impending approval of a spot ETF for Bitcoin could potentially amplify demand and restrict supply. With global assets under management reaching $115 trillion, Bitcoin’s increased accessibility through stock exchanges might attract significant market inflows.
While the ETF’s approval is anticipated to entice both individual and institutional investors and boost market confidence through SEC oversight, it’s crucial to note the risks linked with third-party custody, as highlighted by the phrase “Not your keys, not your coins.” A Bitcoin ETF doesn’t offer the same security as holding your cryptos in a wallet.
Recognition by institutions through these funds could substantially impact Bitcoin’s price and market dynamics, signaling a potential shift in the digital asset landscape. This week’s events might offer insights into Bitcoin’s future trajectory through institutional investment via Bitcoin spot ETFs.