- On Wednesday, the U.S. Securities and Exchange Commission (SEC) approved the first U.S. Bitcoin ETF.
- While Spot Bitcoin ETFs are already available in Canada and Europe, approval in the U.S. holds extraordinary significance.
- Now, traders are closely monitoring the potential fund inflow resulting from these newly approved financial products.
Approval of the first Spot Bitcoin ETFs in the U.S. by the SEC: So, what exactly is the significance of these ETFs? All the details!
Significance of Spot Bitcoin ETFs in the U.S.
On Wednesday, the U.S. Securities and Exchange Commission (SEC) approved the first U.S. Bitcoin ETF, marking a turning point for the crypto industry after a decade-long wait for such a product.
After a series of rejections since 2013, the SEC reconsidered its stance in August, stating the need to address concerns about market manipulation vulnerabilities after rejecting the Bitcoin ETF application from Grayscale Investments. Finally, on Wednesday, the SEC approved a total of 11 applications from ARK Invest, Fidelity, BlackRock, and others.
The approval of the Spot Bitcoin exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC) is not only limited to financial outcomes but also boosts the legitimacy of the entire crypto sector, propelling Bitcoin into more mainstream recognition.
This development occurs against the backdrop of an ongoing regulatory struggle between the crypto industry and the SEC, resulting in the regulator increasing regulatory scrutiny on the sector. The crypto industry has emerged victorious in this particular regulatory battle.
- Global Significance: While Spot Bitcoin ETFs are already available in Canada and Europe, obtaining approval in the U.S. holds extraordinary importance. As the world’s largest capital market, the U.S. hosts the largest asset managers and institutional investors globally.
- Financial Expectations: The financial impact of a Spot bitcoin ETF is uncertain. In 2021, the first SEC-approved Bitcoin futures ETF, ProShares Bitcoin Strategy ETF (BITO.P), witnessed approximately $1 billion in share trading on its first day. Experts speculate that the amount could triple on the first day of a Spot bitcoin ETF, reaching an estimated $55 billion within five years.
- Market Dynamics: Although Bitcoin has seen a 70% increase since the Grayscale decision, predicting its future trajectory is challenging. Analysts emphasize that factors like interest rates will play a significant role in determining how much of Bitcoin’s rise they influence.
Bitcoin experienced a brief dip to $47,000 in response to the SEC’s approval before quickly rebounding. Now, traders are closely monitoring the potential fund inflow resulting from these newly approved financial products.
How Does a Spot BTC ETF Work?
Bitcoin Exchange-Traded Funds (ETFs) will be listed on major platforms like Nasdaq, NYSE, and CBOE. These ETFs will be backed by physical Bitcoin acquired from cryptocurrency exchanges, secured through custodians like Coinbase Global.
The underlying assets of these ETFs will reflect an index tied to Bitcoin. Some will follow an index provided by CF Benchmarks, a subsidiary of Kraken that aggregates trading data from significant cryptocurrency exchanges operating Bitcoin-USD markets.
In response to SEC concerns about market manipulation, Nasdaq and CBOE have partnered with Coinbase, the largest cryptocurrency exchange in the U.S., to establish a market surveillance mechanism. The issuers of these Bitcoin ETFs plan to charge fees significantly below the average fees observed in the general ETF market, ranging from 0.20% to 0.80%.
Buying BTC vs. Buying ETF
A Spot Bitcoin ETF provides investors with the convenience of participating in Bitcoin’s price movements without the complexities and risks associated with direct cryptocurrency ownership, such as creating crypto wallets and dealing with accounts on various cryptocurrency exchanges. ETF purchase alleviates concerns about dealing with accounts on various cryptocurrency exchanges for some in the crypto industry who are sensitive to low cybersecurity and hacking issues.
The crypto industry has experienced bankruptcies and scandals, including the collapse of FTX. Sam Bankman-Fried, the founder of FTX, faced fraud charges. Other exchanges were accused of violating U.S. securities laws, and Binance, the world’s largest cryptocurrency exchange, admitted guilt in violating U.S. anti-money laundering laws, contributing to investor concerns.
In contrast, ETFs operate in a regulated environment and are subject to strict regulations, providing access to retail investors through existing broker accounts. The ETF structure increases access to Bitcoin for those with restrictions on direct investments in alternative assets, including institutional investors.
Spot Bitcoin ETFs differ from the Bitcoin futures ETFs approved by the SEC in 2021. Bitcoin futures ETFs track agreements to buy or sell Bitcoin at specified prices but may not fully reflect price movements. Additionally, costs associated with rolling over futures contracts can impact returns, making them less attractive for many investors.
