Bitcoin Exchange-Traded Funds (ETFs) have been a circulating topic within the crypto and investment space in the past year. Since the official SEC approval on January 10th, signing 11 ETF applications from institutional firms including BlackRock, Grayscale, Fidelity, Ark Invest, and more – Bitcoin has become more accessible to everyday investors.
Given the recent news and the time passed since this event, this article explores what Bitcoin ETFs are, the various types available, and recent market news.
What are Bitcoin ETFs?
Bitcoin futures exchange-traded funds (ETFs) represent aggregated collections of bitcoin-related assets made available on traditional exchanges by brokerages for ETF trading. The main purpose of these ETFs is to provide retail and other investors with exposure to cryptocurrencies, eliminating the need of direct ownership.
Bitcoin ETFs, specifically, fall into two main categories: spot and futures.
Spot Bitcoin ETF: This type aims to provide investors with direct exposure to the real-time market price of Bitcoin. It holds actual bitcoin as its underlying asset, allowing investors to closely track the cryptocurrency's immediate value. Examples include BlackRock's iShares Bitcoin Trust, Grayscale Bitcoin Trust, and ARK 21Shares Bitcoin ETF.
Futures Bitcoin ETF:
Contrastingly, futures ETFs do not hold actual bitcoin. Instead, they utilize bitcoin futures contracts, allowing investors to speculate on the future price of the cryptocurrency. These ETFs can offer leveraged or inverse exposure, potentially amplifying gains and losses. Examples include ProShares Bitcoin Strategy ETF, Valkyrie Bitcoin, and Ether Strategy ETF.
Why Investors Are Interested and Implications within the Crypto Space
The demand for a bitcoin ETF primarily comes from accessibility and exposure to bitcoin as an asset class. Below are a couple of key reasons explaining the interest investors have in bitcoin ETFs:
- Ease of Access: ETFs are traded on traditional stock exchanges, providing a streamlined process for mainstream investors to buy, hold, and trade bitcoin-related assets through their existing brokerage accounts. This accessibility is especially attractive to investors unfamiliar with cryptocurrency exchanges or those hesitant to use them.
- Portfolio Diversification: Investors perceive Bitcoin as a potential diversification tool. By offering exposure to Bitcoin through an ETF, they can integrate the cryptocurrency into their investment portfolios without requiring direct management or ownership of digital assets.
- Mainstream Acceptance: The introduction of a bitcoin ETF signifies a step towards mainstream acceptance and integrating cryptocurrencies into traditional financial systems. This development indicates the growing acknowledgment and normalization of digital assets within established financial frameworks.
Top News Since SEC Approval
Since the SEC approval, Bitcoin has seen a 15% decrease in price, according to a recent Financial Times article. The fall is associated with some investors using the hype of the Bitcoin ETF to make short-term profits and exit their holdings.
Despite Bitcoin achieving a trading volume of over $1.74 billion in the initial hour of being listed around two weeks ago, Bitcoin is now hovered around the $45K mark. Today, given the dip, some investors are left with losses and underwhelmed.
Conclusion
Bitcoin ETFs represent a bridge between traditional investment and the cryptocurrency space, offering accessibility and regulatory oversight. While spot Bitcoin ETFs mark a significant development, investors must carefully consider the evolving regulatory landscape, potential limitations, and the maturity of the cryptocurrency market. With the given news and market volatility since the SEC's approval, analysts predict it will still take time for the market to regulate and show the potential of the new asset.
