BTC exchange-traded funds allow investors to invest in the largest cryptocurrency by market capitalization without owning any cryptocurrency.
What are Bitcoin ETFs?
Bitcoin Exchange-Traded Funds (ETFs) represent a bridge between traditional finance and the cryptocurrency market, specifically the leading cryptocurrency, Bitcoin (BTC). Unlike trading directly on cryptocurrency platforms, these ETFs can be bought, sold, and traded on traditional exchanges.
For mainstream investors and speculators, Bitcoin ETFs offer a reliable and familiar vehicle to gain exposure to the price movements of Bitcoin. This accessibility is crucial for those who might be more accustomed to traditional investment avenues.
Exchange-traded funds are not a novel concept in finance; they have long been used to provide exposure to various assets and sectors, encompassing commodities and currencies. In the case of Bitcoin ETFs, they serve as a means to track and benefit from Bitcoin’s price dynamics.
While the United States has not yet approved a spot Bitcoin ETF, investors have the option to invest in Bitcoin futures ETFs. It’s important to note the distinction: a spot Bitcoin ETF is backed by actual Bitcoin, whereas Bitcoin futures ETFs derive their value from Bitcoin derivatives.
Introducing a Bitcoin ETF to an investment portfolio expands the choices available to U.S. investors. The recent application by asset management giant BlackRock for a Bitcoin ETF has fueled optimism, hinting at the potential approval of a Spot Bitcoin ETF in the U.S. in the near future.
Advantages of Bitcoin ETFs
1. Ease of Purchase
Unlike buying Bitcoin directly from a cryptocurrency exchange or ATM, ETFs provide a more accessible option. Investors can gain exposure to Bitcoin’s price without the need to navigate crypto wallets or open accounts on crypto exchanges.
2. Portfolio Diversification
Bitcoin ETFs can offer diversification by holding various assets. Beyond Bitcoin itself, these funds may include bitcoin-related stocks and other assets, allowing investors to diversify their portfolios within traditional markets.
Disadvantages of Bitcoin ETFs
1. Fees
ETFs typically come with management fees, which are deducted from the fund. Investors should be aware of the “expense ratio” of the ETF, as a portion of the invested money goes towards compensating the fund managers rather than directly into the investments.
2. Bitcoin Ownership
Owning a Bitcoin ETF doesn’t equate to owning actual Bitcoin. ETF holders gain exposure to Bitcoin’s price movements, but they don’t possess the underlying assets. This lack of ownership might limit flexibility, especially for those seeking direct control over their digital assets.
3. Stricter Trading Hours
While cryptocurrencies can be traded 24/7, traditional financial exchanges, where ETFs are traded, adhere to specific operating hours. For instance, the New York Stock Exchange operates only during certain hours on weekdays. This limitation means investors might be unable to act on significant BTC price changes that occur outside of these trading hours.
4. Mispricing
Real-time reflection of Bitcoin’s price movements may be delayed, especially in ETFs covering multiple assets. This lag in updating prices could result in mispricing, where the ETF’s value doesn’t accurately represent the current state of the cryptocurrency market.
Access to Bitcoin ETFs
While the approval of Bitcoin ETFs is pending in the United States, it’s essential to recognize that this financial instrument is already accessible in numerous countries. The expanding popularity of the cryptocurrency industry has prompted providers to introduce Bitcoin exchange-traded funds in various regions. Some notable examples include:
Canada:
1. 3IQ Coinshares
2. Purpose Bitcoin
3. CI Galaxy Bitcoin
Europe:
1. 21Shares Bitcoin ETP
2. BTCetc – ETC Group Physical Bitcoin
3. VanEck Bitcoin ETN
4. Iconic Funds Physical Bitcoin ETP
5. Bitpanda Bitcoin ETC
Brazil:
– QR Capital’s Bitcoin ETF
Jersey:
– WisdomTree Bitcoin
These offerings outside the United States provide investors in different parts of the world with the opportunity to engage in Bitcoin investment through the structure of exchange-traded funds. It showcases the global acceptance and adoption of cryptocurrency-related financial products.
Bitcoin ETF Process in the US
Anticipation for Bitcoin ETFs in the United States is tempered by the intricate approval process, marked by historical rejections. The challenging task of securing approval from the U.S. Securities and Exchange Commission (SEC) has been underscored by past denials.
In a notable move, the SEC greenlit the ProShares Bitcoin Strategy ETF, the first bitcoin futures exchange-traded fund, in October 2021. Subsequently, Teucrium’s Bitcoin Futures ETF received approval in April 2022. While these developments fueled optimism, the prospect of approval for a spot bitcoin ETF in the U.S. remains uncertain.
Grayscale Investments, seeking to transform its Bitcoin Trust (GBTC) into a spot bitcoin ETF, faced setbacks. On June 29, 2022, the SEC rejected Bitwise’s and Grayscale’s spot bitcoin ETF applications, citing concerns about market manipulation and other issues. In response, Grayscale initiated legal action, appealing to the US Court of Appeals for the District of Columbia Circuit.
Despite reapplications to the SEC by several companies, BlackRock’s submission in June 2023 is seen as a significant opportunity for U.S. investors. The awaited milestone is the potential approval of the first Spot Bitcoin ETF by the SEC on January 10, 2024. The outcome of this decision holds considerable weight in shaping the landscape of Bitcoin investment in the U.S.