The US SEC has been rejecting applications of Bitcoin’s ETFs pointing out the volatility of the underlying asset.
But the latest developments, the US courts indicate the Spot Bitcoin ETFs might soon be on the horizon.
In this blog post, we will learn what are the latest developments giving a push for Bitcoin ETFs. And what are Bitcoin ETFs?
Table of contents
- What are ETFs?
- What is a Bitcoin ETF?
- How is Bitcoin ETFs different from Direct Investments in Bitcoin?
- How do Bitcoin ETFs Operate?
- Why Bitcoin Spot ETFs are not approved by the US SEC?
- Spot Bitcoin ETF Approvals
- What is a Futures Contract?
- Are there any Mainstream Bitcoin ETFs?
- What will happen if Bitcoin ETF is approved?
- Why ETF is Less risky?
- Is Bitcoin ETF taxable?
- Will BTC go up after ETF if Approved?
- Is it Safe to Put all your money in an ETF?
- Factors responsible for indications of Approval from US SEC for Bitcoin ETFs.
- What will happen if the US SEC does not Approve Bitcoin ETFs?
- Crypto Markets dramatically underestimate the “bullishness of Spot Bitcoin ETFs”.
- In Canada, Spot Bitcoin ETFs have been working for Years.
- Grayscale wins the court battle, but what does this mean for a spot Bitcoin ETF?
- Institutions Fils for a Bitcoin ETF
What are ETFs?
Chiefly, ETF stands for exchange-traded fund.
In simple words, it is a type of pooled investment security that tracks a particular index, sector, commodity, or other asset.
ETFs can be purchased or sold on a stock exchange in the same way that a regular stock can be.
What is a Bitcoin ETF?
Essentially, based on the definition of an ETF, a Bitcoin ETF tracks the price of Bitcoin. They are pools of Bitcoin-related assets offered on traditional exchanges by brokerages to be traded as ETFs.
The intent behind these ETFs is to allow retail investors and investors not comfortable investing in cryptocurrencies an option to trade in them.
How is Bitcoin ETFs different from Direct Investments in Bitcoin?
For starters, in the case of Bitcoin ETFs, an investor would not need a crypto wallet since they are not directly holding the Bitcoin.
Secondly, they would not have to register with a crypto exchange and maintain an account for holding their investment.
Thirdly, while investing in a Bitcoin ETF, the investment is not directly into the cryptocurrency but an indicator of its value.
How do Bitcoin ETFs Operate?
Mainly, based on the proposals and the regulator’s comments on Bitcoin ETFs, there are a few ways in which the financial instrument could operate and assign value to the underlying asset.
The first is the fractionalized holding of the cryptocurrency. For instance, the institution running the fund would purchase Bitcoin at a particular rate and hold it.
Why Bitcoin Spot ETFs are not approved by the US SEC?
Based on the price movements of the crypto, the institution would offer fractionalized shares of its holdings on a traditional exchange. This is commonly referred to as Bitcoin Spot ETF.
However, the US SEC has not approved this method to operate a Bitcoin ETF.
They have in turn put forth an alternate method to operate the financial instrument, based on the Bitcoin futures contract on the Chicago Mercantile Exchange (CME). This is commonly referred to as Bitcoin Futures ETF.
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Spot Bitcoin ETF Approvals
The first catalyst centers on the potential approval of spot Bitcoin exchange-traded Funds (ETFs).
A spot ETF, unlike its futures counterparts, is based on the current price of Bitcoin and allows investors direct exposure to cryptocurrency market.
The U.S. Securities and Exchange Commission (SEC) has been historically hesitant to approve such investment products due to concerns over market manipulation and volatility.
However, the winds may be changing direction.
Approval would not only legitimize Bitcoin as an investable asset to a broader segment of the public, but could also unleash a substantial influx of institutional money in the crypto market.
Such an event could be a watershed moment, positioning Bitcoin as a mainstream financial asset and catalyzing a significant price surge.
What is a Futures Contract?
To put it simply, a futures contract is a financial agreement between two parties to buy or sell an asset. Such as commodities, currencies, or financial instruments, at a predetermined price on a specific date in the future.
The price at which the asset will be bought or sold is known as the “futures price”.
This allows individuals and businesses to hedge against price fluctuations or speculate on the future direction of an asset’s price.
The profit or loss in a futures contract indeed depends on the difference between the agreed-upon futures price and the actual market price of the asset at the time of contract expiration.
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Are there any Mainstream Bitcoin ETFs?
The Grayscale Bitcoin Trust (GBTC) – It has a 2% management fee.
The Proshares Bitcoin Strategy ETF – It has an expense ratio of 0.95%.
The biggest equity index funds, in contrast, can have expense ratios below 10 basis points, which is equal to 0.10%.
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What will happen if Bitcoin ETF is approved?
The potential approval of a Bitcoin ETF holds significant implications for the Bitcoin market and the broader financial industry.
It would provide investors with a regulated and convenient way to gain exposure to Bitcoin, potentially driving increased demand and liquidity.
Why ETF is Less risky?
One ETF can give exposure to many stocks from a particular industry, investment category, country, or a broad market index.
ETFs can also provide exposure to asset classes other than equities, including bonds, currencies, and commodities. Portfolio diversification reduces an investor’s risk.
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Is Bitcoin ETF taxable?
The IRS classifies cryptocurrency as property or a digital asset. Any time you sell or exchange crypto, it’s a taxable event.
This includes using crypto to pay for goods or services. In most cases, the IRS taxes cryptocurrencies as an asset and subjects them to long-term or short-term capital gains taxes.
Will BTC go up after ETF if Approved?
The price of Bitcoin (BTC) will surge past an eye-watering $150,000 by the end of 2024. As long as the current slew of US spot-Bitcoin exchange-traded funds (ETFs) are approved, according to investment research by a boutique Fundstrat.
Is it Safe to Put all your money in an ETF?
Most ETFs are actually fairly safe because the majority are index funds. An indexed ETF is simply a fund that invests in the exact same securities as a given index, such as the S&P 500, and attempts to match the index’s returns each year.
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Factors responsible for indications of Approval from US SEC for Bitcoin ETFs.
a. First, financial institutions have been pushing for Bitcoin ETFs, portraying them as safer investment options as compared to direct investments in cryptocurrency due to the volatility.
b. Second, based on the proposals and the regulator’s comments on Bitcoin ETF there are a few ways in which the financial instrument could operate and assign value to the underlying asset.
c.Third, the US Courts favor Greyscale over the US SEC in the matter and Blackrock’s latest filing indicates that spot Bitcoin ETFs might soon be on the horizon.
What will happen if the US SEC does not Approve Bitcoin ETFs?
In an Aug. 16 interview on CNBC’s Squawk Box, Fundstrat’s managing partner and head of research, Tom Lee, predicted that a bundle of successful Bitcoin Spot ETF applications would shift Bitcoin’s supply-demand dynamics towards considerable price appreciation.
When asked what the price of Bitcoin could be by the end of next year, Lee did not hold back; he said if the Spot Bitcoin gets approved, the demand will be greater than the daily supply of Bitcoin, so the clearing price will be over $150,000, it could even be like $180,000.
Lee clarified that this could be the case so long as it is a United States-approved spot Bitcoin ETF, as there are already spot Bitcoin ETFs in Europe.
The United States currently, makes up 97.7% of the global trading volume for crypto-related ETFs, according to Bloomberg senior ETF analyst Eric Balchunas. Once spot Bitcoin ETFs are approved, this could go to 99.5%, he said.
However, even if the spot ETF applications are rejected, Lee still predicts a considerable price push to come from Bitcoin’s next halving event, expected to take place in April 2024.
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Crypto Markets dramatically underestimate the “bullishness of Spot Bitcoin ETFs”.
The potential of a Spot Bitcoin Exchange-traded fund (ETF) approval to drive prices up is dramatically underestimated by the crypto market, claim analysts from crypto research firm K33, formerly Arcane Research.
In a Sept.5 market report, K33 senior analyst Vetle Lunde and vice president Anders Helsetth said the last three months had greatly improved the chances of a spot Bitcoin ETF approval.
But that sentiment had not been reflected in the price of Bitcoin or other mainstay crypto assets.
The analysts explained while Bitcoin had all but given up its gains in the wake of Grayscale’s legal victory over the SEC, an approval would “attract enormous inflows” and significantly increase buying pressure for Bitcoin.
However, the downside of a potential rejection would be “negligible” and Bitcoin prices would simply maintain business as usual.
Lunde and Helseth added that given the increased likelihood of Spot Bitcoin’s approvals with several Bloomberg analysts now predicting a 75% chance of approval within the year. The market’s outlook on ETFs is fundamentally incorrect.
According to Lunde, the market is wrong by all accounts, a buyer’s market, and it’s reckless not to aggressively accumulate BTC at current levels.
Bolstering their bullish prediction, the analysts looked to the recent 2% gain in the tech-heavy Nasdaq-100 index, often viewed as an indicator of the broader market’s risk appetite.
ETH is set to outperform Bitcoin.
Additionally, Lunde and Helseth shared their optimism for the price of Ether, explaining that ETH appears likely to outperform Bitcoin over the next two months as it will benefit from strong momentum ahead of a futures-based ETF listing.
They explained Ether may track a similar path to Bitcoin which gained roughly 60% in the weeks leading up to the launch of the first Bitcoin futures-based ETF on Oct. 19, 2021.
The verdict on a futures-based Ether ETF is slated to be handed down in mid-October, which is reportedly set to get the green light from the BTC.
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In Canada, Spot Bitcoin ETFs have been working for Years.
Chiefly, BlackRock’s (BLK) recent filing for a Bitcoin exchange-traded fund with the US SEC sparked renewed institutional interest in Spot Bitcoin ETFs.
The development seems only to have increased divisive discussions on crypto-related financial instruments in the U.S.
But to have a more nuanced conversation on the implications of a spot Bitcoin ETF for markets, you only need to look north to Canada. These products have been approved and running successfully for the past two and a half years.
While the “not-your-keys,not-your-crypto” crowd will invariably point to the drawbacks of getting a portfolio through ETF.
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Present Scenario in Canada
Some crypto investors will always distrust not directly controlling their coins. But the reality is that in Canada, strict regulatory oversight has forced fund providers to operate transparently. As well as adhere to an operational framework.
Basically, this makes the potential for asset commingling, hacks, and fraud extremely difficult.
To date, investors have bought units of Canadian Spot Bitcoin ETFs. They never had their assets hacked or had their funds lost through malpractice or poor balance sheet management.
This can not be said for the millions of investors who trusted their assets with the likes of FTX, Celsius Network, and BlockFi.
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Grayscale wins the court battle, but what does this mean for a spot Bitcoin ETF?
A federal judge has overturned the United States Securities and Exchange Commission’s decision to deny an exchange-traded fund (ETF) offering from Grayscale Investments through its Bitcoin Trust.
However many experts have pointed out, that the court ruling will not automatically lead to the first spot Bitcoin ETF in the country.
In an Aug. 29 decision with the U.S. Court of Appeals for the District of Columbia Circuit, Judge Neomi Rao supported Grayscale’s position that its proposed Bitcoin
$26,216 ETF was “materially similar” to Bitcoin futures exchange-traded products already approved by the Securities and Exchange Commission (SEC) for trading.
The court largely ruled that the SEC’s justification for denying Grayscale’s Bitcoin ETF. Mainly, on the grounds that it was not “designed to prevent fraudulent and manipulative acts and practices” was insufficient.
The matter will return to the commission for review.
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Institutions Fils for a Bitcoin ETF
Big investment firms like BlackRock and Fidelity, along with 8 other firms including Franklin Templeton, have applied for Spot Bitcoin ETFs.
This could open the door for $17.7 trillion in hedge fund money to potentially flow into Bitcoin.
After the Approval there will be;
a. Increased Adoption among retailers and institutions
b. Liquidity, for traders and investors
c. Regulatory Clarity, by financial authorities
d. Diversification, by owning and storing digital assets.
e. Mainstream Recognition can validate Bitcoin as an asset class.
f. Market maturity to reduce the extreme volatility.
g. Innovation, leading to the creation of new and improved financial products for investors.
What’s your choice? Who will win this race?
What will be the decision on BlackRock’s Spot Bitcoin ETFs? Do share your thoughts below.
The SEC has continued to argue that a spot Bitcoin ETF could be dangerous for investors while, at the same time, deciding to greenlight Bitcoin futures ETFs.
And the direct buying and selling of digital assets on exchanges. But in Canada, it has been shown that Spot ETFs have been very efficient at mimicking direct portfolio exposure to Bitcoin.
That too, is without the added uncertainty and volatility of the futures markets and having to deal with the operational opacity of regulated exchanges.
In June, Wall Street heavyweights Fidelity, Invesco, Wisdom Tree, and Valkyrie followed the world’s largest asset manager Blackrock in applying for a Bitcoin Spot ETF with the SEC.
However, some of these firms may not learn their fate until sometime in 2024 as the SEC has up to 240 days to make a final decision on an application after commencing the review process.
The outcome of Grayscale’s appeal to convert its GBTC trust product into a Bitcoin Spot ETF is however expected to come sooner rather than later.
Bloomberg ETF analysts Eric Balchunas and James Seyffart recently estimated that there is a 65% chance of these Bitcoin Spot ETFs being approved by the SEC, a significant increase from before BlackRock’s application.
Others have tipped that the $100,000 Bitcoin price could come much sooner than expected, with Blockstream CEO Adam Back recently wagering that Bitcoin will notch the new price milestone the month before the halving event.
However, not everyone is inclined to agree. Jesse Myer, the co-founder of Bitcoin Investment Firm Onramp, explained on Aug. 15 that the market would only price in the changed reality 12-18 months post-halving.
Bitcoin will not surge to $ 100k before the next halving.
There are several BTC ETFs that trade on exchanges. For example, the New York Stock Exchange ARCA and Nasdaq: Proshares BTC Strategy ETF (BITO). Valkyrie Bitcoin Strategy ETF (BTF)
The largest Blockchain ETF is the Amplify Transformational Data Sharing ETF BLOK with $460.95 M in assets. In the last trailing year, the best-performing blockchain ETF was BLKC at 13.34%. The most recent ETF launched in the Blockchain space was the Horizon Kinetics Blockchain Development ETF BCDF on 08/01/22.
The approval of a Spot BTC ETF could be a game changer for the crypto industry. As it would allow a wider range of institutional investors to access the market. ETFs are popular because they allow market participants to invest in cryptos without having to purchase the underlying digital assets themselves.
The SEC has continued to argue that Spot BitcoinETF could be dangerous for investors. While, at the same time, deciding to greenlight Bitcoin futures ETFs and the direct buying and selling of digital assets on exchanges.
Binance offers a relatively secure, versatile way to invest in and trade cryptos. The platform could be overwhelming for both beginners and experienced traders. Additionally, Binance offers lower fees than any other crypto exchange.