The cryptocurrency world, known for its volatility, has recently faced significant challenges, particularly with the collapse of FTX, one of its largest exchanges, in November 2022. This event sent ripples of concern across the industry. However, the year 2023 saw a strong rebound, especially for Bitcoin, the most notable cryptocurrency, which saw its value surge by over 150%.
Amidst this recovery, a groundbreaking development occurred.
The U.S. Securities and Exchange Commission (SEC), a key financial regulator, gave its nod to the first spot Bitcoin exchange-traded funds (ETFs). This approval, announced on Wednesday, is especially significant considering the SEC’s long-standing resistance to the concept of spot Bitcoin ETFs, a stance it maintained for over a decade.
This change in policy by the SEC paves the way for some of the biggest asset managers to launch their own Bitcoin ETFs. It represents a substantial shift in the regulatory landscape and indicates a newfound acceptance of cryptocurrency investments within mainstream financial markets.
Furthermore, this move opens the door for both retail and institutional investors to gain exposure to Bitcoin in the world’s largest stock market, and potentially heralding a new era for digital currency investments.
#1 Grayscale Bitcoin Trust Paved The Way
Grayscale, the manager behind the Grayscale Bitcoin Trust (GBTC), has launched what is currently the world’s largest Bitcoin ETF.
The GBTC, already a significant player in the cryptocurrency market, boasts an impressive $29 billion in assets under management (AUM) as it was previously already a private fund open only to accredited investors. As a result, it’s the only Bitcoin ETF that has a sizeable AUM.
The SEC only started to change its stance after it lost a court case in August 2023, brought by Grayscale, where the regulator was criticised for blocking Bitcoin ETFs yet allowing ETFs that track Bitcoin futures to launch in late 2021.
#2 Cost Of Bitcoin ETFs
Accessing Bitcoin for investment purposes has traditionally been a costly affair.
For instance, Grayscale, which manages the Grayscale Bitcoin Trust, charges an annual fee of 1.5% for its services. This rate, although reduced from a previous 2%, is still significant. Despite the competitive landscape, Grayscale has expressed no intention of reducing this fee to match its competitors who are entering the Bitcoin ETF market.
In contrast, BlackRock, the world’s largest asset manager, has introduced its own spot Bitcoin ETF under its iShares brand, featuring a much lower expense ratio of just 0.25%. Similarly, Cathie Wood’s ARK Invest, in collaboration with 21Shares, has the ARK 21Shares Bitcoin ETF. This ETF will have an even lower fee of 0.21% but won’t charge that fee until six months after launch or until the ETF reaches US$1 billion in AUM.
As of this week, the U.S. Securities and Exchange Commission (SEC) has approved a total of 11 applications for launching spot Bitcoin ETFs. Excluding GBTC, the expense ratios for these ETFs vary from a modest 0.2% to 0.8%.
This range is relatively affordable, especially when compared to the broader universe of ETFs that focus on niche assets. This pricing strategy suggests that ETF providers are prioritising the accumulation of AUM. This approach could be a strategic move to establish a strong foothold in the rapidly evolving market of cryptocurrency-based investment products.
#3 ETFs Will Be Listed On Major US Exchanges
The Bitcoin ETFs are set are listed on major U.S. stock exchanges, including the Nasdaq, the New York Stock Exchange (NYSE), and the Chicago Board Options Exchange (CBOE).
These ETFs will follow a specific Bitcoin benchmark. Some of them will track an index created by CF Benchmarks, a subsidiary of the cryptocurrency exchange Kraken. This index is designed by aggregating trading data from various Bitcoin to U.S. dollar markets, which are operated by prominent crypto exchanges such as Coinbase. This methodology ensures a comprehensive and representative tracking of Bitcoin’s market value.
#4 Investors Won’t Own Bitcoin Outright
Spot Bitcoin ETFs offer investors a more straightforward way to invest in Bitcoin by tracking its price movements, without the complexities and risks associated with direct ownership of the cryptocurrency. Directly owning Bitcoin can be cumbersome and involves challenges like setting up and managing cryptocurrency wallets.
Additionally, to safeguard against hacking, many investors resort to storing their Bitcoin in “cold wallets,” which are not connected to the internet. Spot Bitcoin ETFs eliminate these technical hurdles, providing a simpler and potentially safer investment option for those interested in Bitcoin’s market performance.
#5 Sentiment Effect Of Bitcoin ETFs Is Crucial
The introduction of spot Bitcoin ETFs is widely regarded as a significant milestone for the legitimacy of cryptocurrencies, both within the financial sector and the crypto industry. This development is particularly impactful in the United States, which represents 60% of the total value of globally listed stocks. By launching spot Bitcoin ETFs in the U.S., a vast new market of both retail and institutional investors will gain access to cryptocurrency as an asset class.
Currently, over 50 million Americans already own some form of cryptocurrency, with a substantial proportion likely holding Bitcoin. This trend is expected to grow with the advent of these new investment vehicles.
Watch For Short-Term Volatility On The Crypto Road
The approval of Bitcoin ETFs marks a landmark moment in the cryptocurrency sphere, especially within the world’s leading financial market. This exciting development opens the door to speculation about the future of other major cryptocurrencies like Ethereum. Now that Bitcoin ETFs have gained the regulatory green light, the spotlight turns to how other digital currencies will fare in this evolving landscape.
The impact of this move is already tangible in Bitcoin’s market performance. In just the early months of 2024, Bitcoin has witnessed an impressive 12% uptick in value, and over the last six months, its price has soared by a remarkable 55%. This surge reflects the optimism and buzz generated by the recent wave of ETF approvals.
However, amidst this buzz, it’s crucial to remember that cryptocurrency prices are influenced by a myriad of factors, not just investor enthusiasm. Key economic influences, such as the Federal Reserve’s interest rate policies, are likely to be significant determinants in shaping Bitcoin’s price as 2024 progresses. As we navigate through the year, it will be fascinating to see how these broader economic forces interplay with the newfound excitement in the cryptocurrency market.
Read Also: Key Lessons From The FTX Fallout For Crypto Investors
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