Monday, March 4, 2024

Decoding the Phenomenon: Unraveling the Secrets Behind the Bitcoin ETF Craze

Over an extended period, cryptocurrency has established itself as an industry well-suited to investors looking for alternative investments. On Wednesday, the Securities and Exchange Commission approved to spot Bitcoin exchange-traded funds, or Bitcoin ETFs, which Wall Street backs. This key regulatory step will make it easier for ordinary investors to put money into the digital currency. Several financial firms were given the green light to offer spot Bitcoin ETFs, including asset management giants such as BlackRock, Franklin Templeton and Fidelity investments that cater to retail investors.

Until now, only Bitcoin futures ETFs have SEC approval. CoinDesk’s Bitcoin Price Index revealed that the SEC’s approval of the ETFs led to Bitcoin prices shooting up, even doubling compared to last year. CoinDesk reported that since October, cryptocurrency prices have risen to 61% on the expectation that the agency would approve spot ETF applications.

What is a Bitcoin ETF?

According to Bitcoin Apex, Bitcoin ETFs are publicly traded investment funds that enable investors to gain direct exposure to Bitcoin (BTC) without owning the cryptocurrency. ETFs or exchange-traded funds are pooled investments, such as mutual funds, but that trade on a stock exchange like a bond or stock that tracks a specific index, asset class or sector, such as gold.

Unlike cryptocurrencies that are traded on cryptocurrency exchanges, ETFs are traded on traditional securities exchanges throughout the day. Bitcoins are the underlying asset of a spot BTC ETF, unlike regular BTC ETFs in which BTC futures contracts are the underlying asset. A firm that issues shares of its BTC holdings purchased through other holders or via an authorised crypto exchange manages each spot BTC ETF. Bitcoin ETF shares are listed on traditional stock exchanges.

How Many Bitcoin ETF Applications Were Approved?

On Wednesday, the SEC gave the green light to 11 spot Bitcoin ETFs. The listed funds include 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 and BlackRock’s iShares Bitcoin Trust. On Thursday, it was revealed that Grayscale holds most BTC with more than $28 billion in assets under management.

The Difference Between Bitcoin ETF and Buying Bitcoin

Bitcoin ETFs differ from buying Bitcoin directly in a few ways. Firstly, unlike cryptocurrencies that are traded on cryptocurrency exchanges, ETFs are traded on traditional securities exchanges, like Nasdaq and the New York Stock Exchange. When you invest in a Bitcoin ETF, you do not own any BTC outright; you are not directly purchasing BTC itself. Instead, you are buying shares in a fund that holds BTC. Secondly, financial firms will charge fees for managing and trading Bitcoin ETFs. In contrast, people who buy BTC directly pay a transaction fee, but there are no costs when managing the investment. Investment experts highlighted that investing in BTC ETF will be easier and safer than buying BTC directly.

There are some advantages to owning BTC via an ETF. For instance, investing in a BTC ETF provides leverage to the price of BTC without learning how BTC works, signing up for a crypto exchange or taking on the risks of owning BTC directly. Investors can hold and track their BTC ETF in the same brokerage account as their other investments.

Potential Outcome of the SEC Approving Bitcoin ETFs

Investors are rooting for the emergence of Spot Bitcoin ETFs, hoping it will pump billions of dollars into the digital currency world by making it easier and less intimidating for investors. This move made by the 11 firms to enter the sector nudges BTC further into the mainstream as an investment class while conferring legitimacy to the highly volatile crypto industry. Nathan McCauley, CEO of Anchorage Digital, a crypto platform provider for financial firms, said, “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”.

According to experts, the price will also rise as demand for BTC rises, likely spurring more investment and interest in crypto. Boosting investment in BTC and introducing new products from reputable financial players could also accelerate the passage of sensible regulations aimed at eliminating fraud and normalising crypto as a way to invest, make payments and conduct business. According to senior Vice President of Digital Finance at Moody’s Investors Service, Rajeev Bamra, strengthening the regulatory framework for crypto is vital. Bamra said, “Whether this trend will hold depends on the trajectory of global monetary policymaking as well as the availability of cryptocurrencies to institutional investors through products that meet regulatory standards, ensuring their safety and security”.

Considering this, it is difficult to answer whether the Bitcoin ETF is worth it. Considering all these aspects mentioned above, each investor must choose whether it is worthwhile. Moreover, experts noted that the new Bitcoin ETF could be worth considering if one wants to add exposure.

Claire James
Claire James
Claire is an accounts manager at Fire Digital UK, an online publishing and content marketing company based in the North West.

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