The approval of the first Bitcoin Exchange-Traded Fund (ETF) is a turning point in the crypto space. It was first Initiated by Cameron and Tyler Winklevoss in 2013, co-founders of the Gemini crypto exchange, since then the journey toward regulatory acceptance has been difficult. This article will provide a clear and detailed overview of Bitcoin ETFs, covering their history, the current situation, implications for the ecosystem, and potential benefits for the ecosystem.
What is ETF?
In simple terms, an Exchange-Traded Fund (ETF) is a type of investment fund that is traded on stock exchanges, similar to individual stocks. ETFs are designed to track the performance of a specific group of assets, such as stocks, bonds, commodities, or, in the case of a Bitcoin ETF, the price of Bitcoin. Investors can buy and sell shares of an ETF on the stock market, providing them with a way to gain exposure to a diversified portfolio or a specific asset class without directly owning the underlying assets. ETFs offer flexibility, liquidity, and the ability to trade throughout the trading day at market prices, making them a popular investment choice for many individuals.
There are two primary categories of Bitcoin ETFs: physical and futures. A physical Bitcoin ETF holds actual bitcoins in custody, while a futures Bitcoin ETF uses derivatives contracts to track the price of Bitcoin. Both types of Bitcoin ETFs have their advantages and disadvantages, which depend on the investor’s risk appetite, cost sensitivity, and regulatory preference. Physical ETFs offer direct ownership and simplicity but may involve storage costs, while spot ETFs provide flexibility but are susceptible to market volatility. Futures-based ETFs offer flexibility but are exposed to market fluctuations, while leveraged and inverse ETFs amplify risks. Evaluating the pros and cons of each type aids in making informed investment decisions, and investors should align their preferences, risk appetite, and investment goals when selecting an ETF.
What is the history behind Bitcoin ETF?
The history of Bitcoin ETFs in the US has been a rocky one, with the first concept for a Bitcoin futures ETF emerging shortly after investors and brokers noticed that Bitcoin prices were trending upward in 2013. Retail and average investors lost the opportunity to invest in Bitcoin directly, and brokerages began to design Bitcoin exchange-traded funds. However, the Security and Exchange Commission (SEC) continued to reject these proposals, and it was not until October 2021 that the first official Bitcoin-linked ETF, the Proshares Bitcoin Strategy ETF (BITO), was approved by the SEC and listed on the New York Stock Exchange.
The approval of the BITO ETF was a significant milestone in the adoption of cryptocurrency by mainstream financial institutions. The fund debuted as one of the most heavily traded ETFs in market history, attracting more than $1 billion in assets in the first few days. The anticipation of the ETFs has already boosted the price of Bitcoin in recent months, and the approval is seen as a significant step in increasing investment in the cryptocurrency industry.
The approval of the BITO ETF is expected to lead to the conversion of the Grayscale Bitcoin Trust, which holds about $29 billion of the cryptocurrency, into an ETF. Additionally, traditional asset managers including BlackRock and Fidelity are poised to launch Bitcoin ETFs. More than 10 different firms are now in the formal process of a launch, with some of the largest financial firms in the world being approved to offer the products.
The history of Bitcoin ETFs in the US reflects the increasing willingness of mainstream financial institutions to deal in cryptocurrencies, and it is likely to pave the way for a new wave of investment in digital assets. The approval of the BITO ETF and the anticipated approval of other Bitcoin ETFs is expected to have a far-reaching impact on the adoption and investment in Bitcoin, and it is likely to boost the price of Bitcoin and unleash new demand for the asset class.
What is the current situation of the Bitcoin ETF?
In a statement on January 10, 2024, Gary Gensler, the Chairman of the U.S. Securities and Exchange Commission (SEC), addressed the recent approval of spot bitcoin exchange-traded funds (ETFs).
The Securities and Exchange Commission approved 10 different applications at the same time, including BlackRock Ark Investments Fidelity, Invesco, VanEck etc. Here is a list of spot Bitcoin ETFs and their fees as of now
- Invesco Galaxy Bitcoin ETF (BTCO): 0.39%
- Valkyrie Bitcoin Fund (BRRR): 0.80%
- Grayscale Bitcoin Trust (GBTC): 1.50%
- Bitwise Bitcoin ETF (BITB): 0.20%
- Ark 21Shares Bitcoin ETF (ARKB): 0.21%
- iShares Bitcoin Trust (IBIT): 0.25%
- VanEck Bitcoin Trust (HODL): 0.25%
- Fidelity Wise Origin Bitcoin Fund (FBTC): 0.25%
- Franklin Templeton Digital Holdings Trust (EZBC): 0.29%
- WisdomTree Bitcoin Fund (BTCW): 0.30%
These ETFs are designed to track the price of Bitcoin, and the funds hold “physical” BTC. However, there’s no guarantee that the share price will deliver the same returns as the underlying asset.
Gensler conceded that what led to spot bitcoin ETF approvals was the regulator’s loss in court over rejecting Grayscale’s application. However, he emphasized that the SEC did not approve or endorse Bitcoin. Gensler also highlighted the need for investor protection in the rapidly evolving cryptocurrency market and the SEC’s role in ensuring fair and transparent markets
What does the Bitcoin ETF approval mean for the Ecosystem?
The approval of spot bitcoin ETFs in the U.S. has significant implications for investors and the ecosystem at large:
The approval of a spot bitcoin ETF in the U.S. opens up the audience of people and institutions that can buy and sell bitcoin, significantly changing the perception of crypto for the mainstream public.
Bitcoin is no longer considered shady or infamous, and it could start appearing in mainstream portfolios
The approval of the Bitcoin ETF is also anticipated to accelerate market adoption and foster the development of regulated crypto products offered by reputable and trusted crypto companies
Additionally, the approval extends far beyond national borders, signaling a move toward global recognition and acceptance of Bitcoin
Lastly, Bitcoin is a speculative and volatile asset, and investors should remain cautious about the risks associated with it.
The approval of Bitcoin ETFs could trigger a domino effect, leading to increased investor interest and capital inflow into both Bitcoin and other cryptocurrencies, potentially driving a price surge and revolutionizing the crypto market.
However, investors need to be aware of the risks and potential market manipulation associated with cryptocurrencies