If you have been following the financial markets, you have undoubtedly heard about the buzz surrounding the possibility of approving spot Bitcoin ETFs. If you’ve ever wondered about investing in Bitcoin but didn’t know where to start, these ETFs could be a great way to gain exposure to the world’s largest cryptocurrency.
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What are Spot Bitcoin ETFs?
For those of you who are unsure of how to invest in Bitcoin, you’re not alone. There are plenty of ways to invest in Bitcoin through the traditional financial markets.
You can buy stocks of Bitcoin miners or crypto exchanges. Some of these include Coinbase (NASDAQ: COIN), Marathon Digital Holdings (NASDAQ: MARA), and Riot Blockchain (NASDAQ: RIOT). You can also buy Bitcoin ETFs, futures, options, and even buy Bitcoin itself on most brokerages.
Bitcoin has quickly become a legitimate player in the global financial industry, so much so that it has even forced the hands of financial institutions to buy Bitcoin themselves.
Recently, banks like Goldman Sachs and JPMorgan have not only bought cryptocurrencies but even offered them as investment options for their customers. Digital banks like SoFi and online brokerages like Robinhood allow users to buy Bitcoin directly through their respective apps.
A lack of understanding about cryptocurrencies keeps most investors from investing in Bitcoin. Many people believe they are all scams or worthless digital tokens. While nobody can deny that some cryptos are scams, there is enough institutional interest in Bitcoin for us to believe it is a legitimate investment asset.
This article will discuss spot Bitcoin ETFs and how they could change the financial markets.
What Are Bitcoin ETFs?
Let’s start with the basics: What are Bitcoin ETFs? As with stock ETFs, Bitcoin ETFs can hold assets related to the crypto industry.
They can hold Bitcoin-related stocks or Bitcoin futures contracts. These ETFs offer traditional investors a great way to gain exposure to Bitcoin through regulated exchanges.
With Bitcoin ETFs, you do not need to worry about using a crypto exchange to buy Bitcoin. You also do not need to be concerned with cold storage wallets or your crypto wallet getting hacked. Now, you can buy Bitcoin assets through your stock brokerage portfolio.
Initially, investing in Bitcoin can seem overwhelming if you don’t know what you are doing. But with Bitcoin ETFs, you can buy shares like any other stock or ETF. The very first Bitcoin ETF launched in Canada back in February 2021.
This ETF, called the Purpose Bitcoin ETF (BTCC.TO), trades on the Toronto Stock Exchange and has more than \$800 million in AUM. Since then, there have been dozens of other Bitcoin-related ETFs trading worldwide. But up to now, most of these have been Bitcoin Futures ETFs.
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Are They a Good Investment?
Trading Bitcoin futures has become a popular strategy for investors. This allows investors to speculate on the future price of Bitcoin without ever having to own it.
Like with other futures ETFs, you can invest in the potential growth of Bitcoin at a fraction of the price of buying Bitcoin itself.
Why else are Bitcoin futures ETFs popular? Well, until now, they have dominated the Bitcoin ETF market. Financial regulators have approved Bitcoin futures ETFs because these funds do not need to own any actual Bitcoin. Once we reach a point where Bitcoin needs to be bought and held securely, regulators have an issue with the security of investor funds.
The SEC is also concerned about potential market manipulation, which has been why it has rejected applications for spot Bitcoin ETFs.
So, how do Bitcoin futures ETFs even work? When the futures contracts in the ETF expire, the ETF provider will extend them to a future date. How does this impact the price of the shares?
If the future strike prices of the contracts are higher, then the price will likely reflect this by rising. This also means that the ETF share price might not mimic the spot price of Bitcoin either. Ultimately, Bitcoin futures ETFs are not a perfect way to invest in Bitcoin through the traditional stock market.
Spot Bitcoin vs. Bitcoin Futures
Spot Bitcoin ETFs have always been the holy grail for investing in Bitcoin. Why? Because for these ETFs to trade, the institutions that offer them must hold Bitcoin in storage to back the fund’s value.
As investors buy shares of these ETFs, they will buy fractional portions of the Bitcoin held by the institutions. This strategy provides a much more accurate reflection of the fluctuations in the price of Bitcoin. The ebb and flow of the supply and demand of the held Bitcoin will impact the price of the ETF.
Why will regular investors prefer spot Bitcoin ETFs? Because it allows them to invest in Bitcoin without needing to own it. And unlike Bitcoin futures ETFs, owning shares of the spot Bitcoin ETF will provide a more realistic return.
Since Bitcoin needs to be acquired, we could see a major surge in the price as demand rises for these ETFs. Remember, only 21 million Bitcoins will ever exist, so when demand rises for a finite asset, it will pressure the total supply.
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Will Spot Bitcoin ETFs Ever Be Approved?
This is the question that everyone is asking right now. Are spot Bitcoin ETFs going to be approved? Over the past few months, some of the largest institutions in the world, including Blackrock and Fidelity, have applied for spot Bitcoin ETFs. While Fidelity and others have applied for the ETFs in the past and have been rejected, no institution as large as Blackrock has ever applied.
If these applications are approved, these institutions can list the ETFs directly on the major US stock exchanges. When we talk about Blackrock’s likes, we could see billions of dollars in Bitcoin purchased to fund these ETFs.
So, what are the chances they get approved by the SEC? Some analysts believe the odds are about 90% that we will see them approved by the end of 2024. Many believe that it will happen much sooner than that. Many crypto experts believe this could coincide with the next Bitcoin halving event in April 2024.
As of now, it’s all in the hands of the SEC. This governing body has rejected numerous applications in the past, citing security measures and potential market manipulation as the primary concerns. One particular issue that has arisen is the need for a surveillance partner. This means that an impartial party must securely store and hold the Bitcoin. For most of these applications, Coinbase has been the chosen entity.
It’s Only a Matter of Time
There are several different reasons why this round of applications could be approved. First, Blackrock is an extremely powerful organization, both financially and politically. The SEC might be unable to afford to reject an application from Blackrock.
On top of that, analysts believe that the SEC is running out of reasons to reject these applications. Not only have these institutions taken care of the surveillance concerns, but the demand from investors has never been stronger. Spot Bitcoin ETFs are also available in other markets, including Canada and Europe. If the SEC continued to reject these ETFs, the US would fall further behind the rest of the world regarding digital currencies and assets.
What does this mean for Bitcoin? If these ETFs are finally approved, we could face another Bitcoin and crypto bull market. The surge in demand would be one of the most bullish catalysts ever seen. The ETFs could finally connect the crypto world and the traditional financial markets. Will you be investing in spot Bitcoin ETFs if they are approved?
