It’s been a rollercoaster week for those who are long on bitcoin. But then again… when isn’t it?
Now, after a decade of speculation, political U-turns, and a well-timed hack of the US Securities & Exchange Commission’s official X account just days ago that prematurely announced the good news, spot bitcoin ETFs have — at long last — been approved.
“While we approved the listing and trading of certain spot bitcoin [exchange traded product] shares today, we did not approve or endorse bitcoin,” caveated SEC Chairman Gary Gensler via statement.
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“Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”
This marks a major turning point in the ongoing mainstream adoption of the world’s most prominent cryptocurrency (and the new-age asset class in general); exchange-traded funds being a far more palatable entry point of investment for the wider population in contrast to the technical barriers of crypto.
So far, the agency has approved a handful of applications to trade such a product from the likes of BlackRock, Cathie Wood’s Ark Investments, Fidelity, 21Shares, VanEck, and Invesco, along with a handful of others. Some of these proposed spot bitcoin ETFs will be available to purchase as early as tomorrow.
BTC has steadily climbed from approximately AU$45,750 to over AU$70,000 these past six months due to the expectation that this development would be green-lit. One can only imagine the new heights the pricing will soar from this point forward.
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According to Standard Chartered analysts (via Reuters), these bitcoin ETFs could draw US$50 billion to US$100 billion this year alone, driving the price of bitcoin itself all the way up to US$100,000. Other analysts have predicted inflows will be closer to US$55 billion over the next five years.
What is an ETF?
An exchange-traded fund (ETF) is a pooled investment security that’s not entirely dissimilar from a mutual fund. ETFs generally track a specific index, sector, commodity, or other assets (some diverse, some singular).
The only difference between an ETF and a traditional mutual fund is the fact that the former can be purchased and sold as units on stock exchanges. Like a regular stock of listed companies.
How do these Bitcoin ETFs work?
Any given bitcoin ETF will be under management by a firm that buys and holds the actual cryptocurrency; with the price of said ETF obviously tied to the value of BTC. These ETFs will be listed on stock exchanges for investors to trade as per usual.
As explained by Jessica Sier of the Australian Financial Review, the more money invested into a bitcoin ETF, the more bitcoin an issuer will have to buy and hold to underpin its product.
Similar to other ETFs, investors will be required to pony up certain fees to the financial institutions offering these to cover the custody and management costs, as well as the storage of the cryptocurrency underlying the fund.
Effectively, this shifts the onerous burden of security, technical knowledge, and what have you away from the investor to said financial institutions. As we said before, it’s essentially an easier way to wet your break in the crypto well.
Will other cryptocurrencies be next?
At this stage, it’s unclear. However, given the mechanisms for such a possibility will already be in place, we wouldn’t be surprised if Ethereum (ETH) and BNB ETFs are on the immediate horizon.
