For several years, major investment firms on Wall Street have been pushing for the approval of Bitcoin spot exchange-traded funds (ETFs). These funds would allow average people to gain exposure to the cryptocurrency in the same way they would invest in a stock.
Previously, the two primary ways to invest in Bitcoin were to directly own the cryptocurrency and store it in a digital wallet or to put money into a Bitcoin futures ETF. Introduced in 2021, Bitcoin futures ETFs give investors the opportunity to invest in Bitcoin without owning the asset itself. Instead, these investors are essentially making a wager on the price of Bitcoin futures, which are contracts that allow for the purchase or sale of an asset at a predetermined price at a future date. Although closely tied to the price of Bitcoin, these futures don’t perfectly mirror its value.
The new Bitcoin spot ETFs function similarly to Bitcoin futures ETFs in that they allow for investment in Bitcoin without direct ownership. This eliminates the need for digital keys and the challenges associated with securely storing Bitcoin. While this is certainly a benefit, the difference between investing in a Bitcoin spot ETF and a Bitcoin futures ETF isn’t significant on paper. The spot ETF simply provides a more accurate reflection of the Bitcoin price.
But why has there been so much hype about this? Until recently, regulatory bodies had denied applications for Bitcoin spot ETFs due to concerns about their vulnerability to fraud and market manipulation. However, as authorities began to warm up to the idea, Bitcoin’s value shot up by over 150% last year. This surge was largely driven by the increasing likelihood of a more stable and accessible crypto market. Supporters of these ETFs are optimistic, and some analysts believe they could release $30 trillion of wealth into the token.
This anticipation reached a fever pitch earlier this week when the SEC seemed to announce via a social media platform that these approvals were in the pipeline. Investors rushed to buy Bitcoin, causing its value to skyrocket before plummeting again when the US regulator clarified that the “announcement” was merely a social media hack. The SEC revealed its actual approval a day later, though the impact was considerably less dramatic.
Which Bitcoin ETFs received approval? Funds from BlackRock, Invesco, Fidelity, and Grayscale were among those given the green light. They begin trading today, and the full list includes:
- Grayscale Bitcoin Trust
- Hashdex Bitcoin Futures ETF
- Valkyrie Bitcoin Fund
- Invesco Galaxy Bitcoin ETF
- WisdomTree Bitcoin Trust
- Fidelity Wise Origin Bitcoin Trust
- BlackRock’s iShares Bitcoin Trust
- Franklin Bitcoin ETF
- ARK 21Shares Bitcoin ETF
- VanEck Bitcoin Trust
- Bitwise Bitcoin ETP Trust
These are the approved Bitcoin spot ETFs and their associated fees.
You may be wondering why you should pay attention to the recent regulatory approvals of Bitcoin ETFs. While it’s not mandatory, these developments could potentially reshape the Bitcoin landscape. Here’s a quick rundown of both optimistic and cautious perspectives.
Optimistic Viewpoints:
- Boost in Bitcoin’s Value: History has shown that ETFs can positively impact their underlying asset’s price. For example, gold’s price doubled within four years after the launch of a significant gold ETF in 2006. Similarly, these new Bitcoin ETFs might trigger a surge in the cryptocurrency’s price.
- Easier, Cost-effective Access to Bitcoin: The advent of spot Bitcoin funds could attract a new wave of retail and institutional investors. These investors might prefer the simplicity, lower fees, and potential tax advantages that come with investing in ETFs instead of directly owning Bitcoin.
- Increased Retail Investor Optimism: According to the Finimize Q1 2024 Modern Investor Pulse, 23% of retail investors plan to invest in digital assets within the next six to 12 months, a rise from 18% in the previous quarter. Moreover, 56% of these investors anticipate Bitcoin’s price will increase over the next year. These figures were recorded before the approval of the Bitcoin ETFs, suggesting that investor sentiment might further improve.
Cautious Viewpoints:
- Negligible Impact: JPMorgan analysts argue that the influence of these new ETFs might be exaggerated. They point out that Bitcoin futures funds haven’t attracted substantial investor interest since their introduction in 2021, and they don’t believe that the slight differences offered by spot Bitcoin ETFs would alter this trend significantly.
- Lack of Practical Applications for Crypto: Despite the potential for ETFs to bring cryptocurrencies into the mainstream, the real test would be widespread acceptance of cryptocurrencies as legal tender at everyday retailers like Walmart and McDonald’s. Until cryptocurrencies become commonplace at checkouts, their value might remain speculative and volatile.