Last week Wednesday, 10th January 2024, the Securities and Exchange Commission (SEC) approved the first-ever spot Bitcoin ETFs. Some may argue that there were already Bitcoin ETFs on the market. While it is correct that there were existing crypto-related ETFs, the distinction lies in the absence of a specific spot Bitcoin ETF prior to the recent approval on Wednesday. Yes, there were ETFs tied to cryptocurrency, but they were often based on futures contracts or other derivatives rather than directly holding the physical asset.
Traces of the impact of this approval on the market were seen a few days before the announcement of the approval. This was due to speculations and the retracted announcement which the official SEC account on X, the social media app, claimed to be a result of a hack. Between Monday the 8th and Wednesday, the 10th, the price of Bitcoin jumped more than 7%.
Let’s look at the ways this may impact the crypto industry as a whole.
What is a spot Bitcoin ETF?
A spot Bitcoin ETF (Exchange-Traded Fund) is a highly liquid fund that mirrors the price movements of Bitcoin throughout the trading day, functioning similarly to a stock. Unlike ETFs based on futures contracts or other derivatives, a spot Bitcoin ETF directly tracks the real-time price of Bitcoin by holding a significant amount of the cryptocurrency itself. This structure is comparable to spot gold ETFs, which hold physical gold bullion on behalf of their investors.
The recent approval of spot Bitcoin ETFs marks a significant milestone, as they are the first cryptocurrency fund to receive regulatory approval and trade on a major exchange while holding actual Bitcoin. This development offers investors a more straightforward and tangible means of participating in the cryptocurrency market.
Why is this different from existing Bitcoin futures ETFs
The recently approved spot Bitcoin ETFs differ from existing Bitcoin futures ETFs in key ways:
1. Direct ownership of Bitcoin:
- Spot Bitcoin ETFs: These ETFs directly hold a substantial amount of Bitcoin. Investors in spot Bitcoin ETFs essentially own a share of the physical cryptocurrency.
- Bitcoin Futures ETFs: These ETFs, approved by the SEC in 2021, track agreements to buy or sell Bitcoin at a predetermined price in the future. They do not hold the physical cryptocurrency but rather derivatives tied to the future price of Bitcoin.
2. Precise price tracking:
- Spot Bitcoin ETFs: Aim to precisely track the real-time price movements of Bitcoin. The fund’s value corresponds closely to the actual market value of Bitcoin.
- Bitcoin Futures ETFs: Price movements of these ETFs may not mirror the exact fluctuations of Bitcoin. The use of futures contracts introduces a degree of divergence from the spot price of Bitcoin.
Which spot Bitcoin ETFs were approved?
The SEC has approved the following 11 spot bitcoin ETFs:
- BlackRock’s iShares Bitcoin Trust
- Grayscale Bitcoin Trust
- ARK 21Shares Bitcoin ETF
- Bitwise Bitcoin ETP Trust
- WisdomTree Bitcoin Fund
- Fidelity Wise Origin Bitcoin Trust
- VanEck Bitcoin Trust
- Invesco Galaxy Bitcoin ETF
- Valkyrie Bitcoin Fund
- Hashdex Bitcoin ETF
- Franklin Bitcoin ETF
What are the possible impact of the SEC approval of Bitcoin ETFs?
Experts and investors around the world are speculating that the approval of spot Bitcoin ETFs will see a tremendous rise in investments in the crypto asset. This is expected to make it easier to invest in.
“A spot bitcoin ETF marks the end of crypto as a ‘novel’ asset class – and the beginning of a world where it can be part of every portfolio,” Nathan McCauley, CEO and co-founder of institutional crypto unicorn, Anchorage Digital, said.
Bloomberg Intelligence estimates suggest that the spot Bitcoin ETF market has the potential to expand to $100 billion over time.
As the cryptocurrency market continues to evolve, such estimates reflect the potential scale and significance of spot bitcoin ETFs in the broader financial landscape. However, its actual impact remains to be seen over time.
