What Importance Does A US Bitcoin ETF Hold? All Details

On Wednesday, the U.S. Securities and Exchange Commission (SEC) approved the first US Bitcoin ETF, marking a pivotal moment for the cryptocurrency industry’s decade-long quest for such a product.

Despite numerous rejections since 2013, the SEC reconsidered its stance after a court ruled against rejecting Grayscale Investments’ Bitcoin ETF application in August, citing a need to address concerns about market manipulation vulnerabilities. Finally, on Wednesday, the US SEC approved a total of 11 applications from ARK Investments, Fidelity, BlackRock, and others.

The Importance of US Bitcoin ETF Approval

In a pivotal moment for the cryptocurrency industry, the approval of a spot bitcoin exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC) extends far beyond monetary implications. The green light for a spot Bitcoin ETF elevates the legitimacy of the entire cryptocurrency sector, ushering Bitcoin further into mainstream recognition.

This development unfolds against the backdrop of an ongoing struggle between the cryptocurrency industry and the SEC, which has been intensifying its regulatory scrutiny on the sector. In this particular regulatory battle, the cryptocurrency industry emerges victorious.

• Global Significance: While spot Bitcoin ETFs already exist in Canada and Europe, the approval in the United States carries exceptional significance. As the world’s largest capital market, the United States hosts some of the largest asset managers and institutional investors globally.
• Financial Expectations: The financial impact of a spot bitcoin ETF remains uncertain. The ProShares Bitcoin Strategy ETF (BITO.P), the first SEC-approved bitcoin futures ETF in 2021, witnessed approximately $1 billion in shares traded on its inaugural day. Experts speculate that a spot bitcoin ETF could surpass three times this amount on its first day, potentially reaching $55 billion over the course of five years, according to some estimates.
• Market Dynamics: While Bitcoin has experienced a 70% surge since the Grayscale ruling, predicting its future trajectory remains challenging. Analysts emphasize that factors such as interest rates will likely play a significant role in determining the extent of Bitcoin’s upward movement.

Bitcoin experienced a subtle ascent, briefly reaching $47,000, in response to the SEC’s approval. Traders are now observing the market dynamics, eagerly anticipating the inflow of funds into these newly approved financial products.

How Does A Spot BTC ETF Work?

The Bitcoin Exchange-traded funds (ETFs) shall list on major platforms including Nasdaq, NYSE, and the CBOE. These ETFs will be backed by physical Bitcoin, acquired from cryptocurrency exchanges and safeguarded through custodians such as Coinbase Global (COIN.O).

The underlying assets of these ETFs will mirror a benchmark linked to Bitcoin. Some will track an index from CF Benchmarks, a Kraken-affiliated subsidiary, which consolidates trading data from various Bitcoin-USD markets operated by prominent cryptocurrency exchanges.

In response to the Securities and Exchange Commission’s (SEC) concerns about market manipulation, Nasdaq and CBOE have collaborated with Coinbase, the largest cryptocurrency exchange in the United States, to establish a market surveillance mechanism, reports Reuters.

Issuers of these Bitcoin ETFs are planning to levy fees ranging from 0.20% to 0.8%, significantly below the average fees observed in the broader ETF market.

Buying BTC vs Buying ETFs

A spot Bitcoin ETF offers investors a convenient way to participate in Bitcoin’s price movements without the complexities and risks associated with direct ownership of the cryptocurrency. The ETF buying mitigates issues like establishing crypto wallets and dealing with accounts on various crypto exchanges, some of which have a history of poor cybersecurity and susceptibility to hacks.

The cryptocurrency industry has witnessed bankruptcies and scandals, including the downfall of FTX, a crypto exchange whose founder, Sam Bankman-Fried, faced fraud charges. Other exchanges faced allegations of violating U.S. securities laws, and even Binance, the world’s largest crypto exchange, admitted guilt in breaking U.S. anti-money laundering laws, contributing to investor apprehension.

In contrast, ETFs operate within the regulated environment of stock exchanges, ensuring accessibility through retail investors’ existing brokerage accounts, subject to strict supervision. The ETF structure enhances Bitcoin accessibility for institutional investors, including those with restrictions on direct investment in alternative assets.

Spot Bitcoin ETFs distinguish themselves from existing Bitcoin futures ETFs, which the SEC approved in 2021. Bitcoin futures ETFs track agreements to buy or sell Bitcoin at predetermined prices, but they may not precisely mirror price movements. Additionally, the costs associated with rolling over futures contracts can impact returns, making them less appealing to many investors.