Bitcoin prices have been soaring amid reports that spot bitcoin ETFs (exchange-traded funds) could soon hit the market.
The price of the largest cryptocurrency by market value climbed as high as $47,900 Tuesday evening after a tweet on the Securities and Exchange Commission's (SEC) suggested the regulatory agency approved a spot bitcoin ETF. However, the SEC immediately issued a follow-up tweet that indicated its X page was hacked and that the tweet was fake. Bitcoin prices quickly turned tail.
Still, Bitcoin has more than doubled over the past 12 months – effectively ending the crypto winter from 2022 – and is now trading at levels not seen in nearly two years. "Bitcoin has stormed higher again … on the back of more ETF chat," says Craig Erlam, senior market analyst at OANDA. "There's clearly a lot of excitement about the prospect of a bitcoin spot ETF, as is evident by such a surge on speculation of something that was already expected to eventually get over the line."
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Bitcoin was little changed late Wednesday after the SEC actually did approve rule changes that will allow for spot bitcoin ETFs to begin trading in U.S. markets, paving the way for institutional investors and retail traders to more easily access exposure to the cryptocurrency.
This follows a major ruling last summer from a federal appeals court that overturned the SEC's attempt to block Grayscale Investments' application for a spot bitcoin ETF. Judge Neomi Rao said the SEC's decision to approve two bitcoin future ETFs but reject the application for the spot market fund was "arbitrary and capricious." This effectively paved the way for today's decision.
What's the difference between a spot vs futures ETF?
In 2021, cryptocurrency traders scored a win when the SEC approved the ProShares Bitcoin Strategy ETF (BITO) – the first crypto ETF on the market that was not tied to stocks. The fund was so popular it accumulated more than $1 billion in assets under management by its second day.
There are plenty of other Bitcoin and crypto ETFs on the market, but none that are tied to a digital asset's spot price – or where it is trading at right now so that it can be bought for immediate delivery. This differs from futures prices, which are where the cryptocurrency is expected to be trading in the future. Futures traders buy contracts that lock in this price for a delivery of the asset at a later date.
The SEC had previously rejected approving a spot bitcoin ETF, citing risks such as market manipulation and fraud.
Spot bitcoin ETFs will drive demand by investment advisors and wealth and private banking integrated products, as well as provide easier access to ETFs in direct broker accounts, says Gautam Chhugani, senior analyst of Global Digital Assets at Bernstein. The analyst thinks total managed crypto assets will reach $500 billion to $600 billion over the next five years, up from the current $45 billion to $50 billion.
What happens next?
The ruling likely won't have a negative impact on the crypto industry, says Julius de Kempenaer, senior technical analyst at Stockcharts.com. "It opens up access to a broader group of participants which means more turnover, more adaptation and very likely in-flow from investors who so far have not taken the plunge to allocate to crypto for various reasons."
As for any negatives, "the only thing I can come up with is when there would be very strict regulations, restrictions and policies attached to buying and selling the bitcoin ETFs," de Kempenaer adds.
Following today's decision, spot bitcoin ETFs could start trading as soon as tomorrow, January 11. A number of firms including Grayscale, Ark Invest and Fidelity have already submitted paperwork to launch their own funds.
The high demand among asset managers is good news for investors as many issuers are cutting their fees on the bitcoin funds. Invesco, for instance, is waiving the 0.59% fee for its Galaxy Bitcoin ETF (BTCO) for the six months on the first $5 billion in assets.
Should I buy a bitcoin ETF?
"Bitcoin ETFs give investors a sense of security – there's a layer of protection," says Karim Nurani, chief strategy officer at private investing firm Linqto. "Most people still regard cryptocurrency as a wildly volatile and unsafe asset class and they're discouraged by the complexity of self-custody and the ever-present danger of cryptocurrency hacks, scams and exploits. Having trusted financial entities provide spot bitcoin ETF mitigates these risks and responsibilities."
Investors may not want to rush out and scoop up shares of these new ETFs, though. At the moment, cryptocurrencies remain highly speculative and should be approached with extreme caution. For market participants interested in dipping their toes into the crypto space, it is crucial that they do their research and only use money they can afford to lose.
One benefit of buying exchange-traded funds is that they spread risk across a basket of assets. However, when it comes to crypto ETFs, this is likely more true for funds that are made up of stocks vs those that are tied to futures or spot prices of a digital currency.
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FAQs
The Securities and Exchange Commission (SEC) rejected spot bitcoin ETFs for more than a decade, hoping to protect investors from market manipulation. But the SEC was forced to approve them last month after Grayscale Investments won a court challenge.
What does Bitcoin ETF approval mean? ›
With the approval of spot bitcoin ETFs, the original cryptocurrency is now seen as a more legitimate asset class. Investors from all walks of life can gain exposure to bitcoin in almost any type of investment account they own, including individual retirement accounts, or IRAs, and 401(k)s. More liquidity.
What does spot Bitcoin ETF mean? ›
Spot Bitcoin ETFs are exchange-traded products (ETPs) that hold Bitcoins in a secure digital vault, which registered custodians manage. 2 This kind of ETF mirrors the price of Bitcoins in the crypto market. The ETF begins by buying Bitcoins from other holders or through authorized cryptocurrency exchanges.
What is happening with Bitcoin ETFs? ›
In the USA, the SEC's approach to Bitcoin ETFs initially involved compromises, favouring futures ETFs due to their perceived lower volatility and lower risk of price manipulation. However, a court ruling in August 2023 compelled the SEC to authorise spot ETFs, leading to a significant market rally.
What is the disadvantage of bitcoin ETF? ›
Disadvantages of Crypto ETFs
1 When buying shares of an ETF, you pay your brokerage's trade fees and the fund's expense ratio. Crypto ETFs have expense ratios from 0.39% to 1.5%, much higher than the transaction fees charged by crypto exchanges. 9.
What happens if bitcoin gets an ETF? ›
A spot bitcoin ETF allows investors to gain direct exposure to bitcoin without holding it. Unlike regular bitcoin ETFs, in which bitcoin futures contracts are the underlying asset, bitcoins are the underlying asset of a spot bitcoin ETF.
Why did Bitcoin drop after ETF approval? ›
Profit-Taking: The anticipation of ETF approvals likely fueled a run-up in Bitcoin's price. Once the approval was confirmed, investors may have decided to lock in profits, leading to a sell-off. Market Expectations vs. Reality: Some investors might have overestimated the immediate impact of the ETF approvals.
What's the point of Bitcoin ETFs? ›
Bitcoin futures ETFs are funds that bundle Bitcoin futures contracts. They provide investors without the means or desire to invest directly in cryptocurrency a way to gain exposure to these volatile and sometimes lucrative assets. You can purchase them on official exchanges.
What is the best spot Bitcoin ETF? ›
Related Tickers
| TICKER | NAME | % Change |
|---|
| BITC | Bitwise Bitcoin Strategy Optimum Roll ETF | 5.68% |
| GBTC | Grayscale Bitcoin Trust ETF | 6.15% |
| FBTC | Fidelity Wise Origin Bitcoin Fund | 6.21% |
| HODL | VanEck Bitcoin Trust | 6.11% |
9 more rowsFor instance, if you're not tech-savvy, not interested in trading BTC against other altcoins, want long-term exposure without having to worry about safekeeping your crypto, and don't mind the higher fees, an ETF might be the better option.
The primary difference between them is how they're structured. Investment trusts are closed-end funds with a fixed number of shares set at an initial public offering (IPO). ETFs are open-end funds, and their shares are created or redeemed based on investor demand.
What is the largest Bitcoin ETF? ›
Blackrock's IBIT has overtaken Grayscale's GBTC as the largest bitcoin ETF on the market. President Joe Biden vetoed a bill that would have allowed traditional banks to more easily serve as a custodian for crypto assets on behalf of their customers.
How many Bitcoin spot ETFs were approved? ›
Statement on the Approval of Spot Bitcoin Exchange-Traded Products. Accessed Jan 10, 2024. . In total, the SEC approved 11 spot Bitcoin ETFs, and 10 of them started trading on Thursday, Jan. 11.
Why am I losing money with ETFs? ›
Market risk
The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.
What happens if ETF collapses? ›
Because the ETF is a separate legal entity from the issuer that manages it, the ETF will control all the assets in its portfolio up until the date set for its liquidation, at which point the manager will sell the assets and distribute the proceeds to investors.
What time will the SEC approve the bitcoin ETF? ›
WASHINGTON/NEW YORK, Jan 10 (Reuters) - The U.S. securities regulator on Wednesday approved the first U.S.-listed exchange traded funds (ETFs) to track bitcoin, in a watershed for the world's largest cryptocurrency and the broader crypto industry.
What is the prediction for bitcoin ETF? ›
Based upon bitcoin's price history, and with tens of billions of dollars expected to flow into spot bitcoin ETFs in 2024, BTC could surpass its $65,000 high, with crypto services firm Matrixport predicting $120,000 by year's end.
Did the SEC chair deny a bitcoin ETF has been approved? ›
US SEC chair denies a Bitcoin ETF has been approved, says account on X was hacked. The US Securities and Exchange Commission said that they had "not approved the listing of spot bitcoin exchange-traded products".
Why not invest in bitcoin ETF? ›
The futures-based Bitcoin E.T.F.s can end up being more expensive because the contracts expire and must be sold and repurchased, or “rolled,” each month. Those costs can be potentially significant, particularly when the new contracts cost more than the previous month's, causing managers to buy high and sell low.
