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People interested in cryptocurrencies still view purchasing Bitcoin on cryptocurrency exchanges as an intimidating and opaque process. Technical aspects of holding Bitcoin, such as cryptocurrency wallets bitcoin address and private keys are confusing to newcomers and scary to some investors.
All of this has further strengthened the appeal of Bitcoin ETFs, or exchange traded funds. In the United States, major financial institutions such as BlackRock, Fidelity, and Invesco have applied to the U.S. Securities and Exchange Commission (SEC) to launch ETFs. As of January 2024, the Securities and Exchange Commission (SEC) has not yet approved a spot Bitcoin ETF.
On the other hand, Grayscale’s two-year fight to launch a Bitcoin ETF may finally be turning a corner. In August 2023, the U.S. District Court of Appeals for the District of Columbia sided with Grayscale against the U.S. Securities and Exchange Commission (SEC) in the cryptocurrency company’s quest to launch a Bitcoin ETF. In October 2023, regulators were ordered to review Grayscale’s application.
In late 2023, SEC Chairman Gary Gensler said the regulator was “taking a fresh look” at Bitcoin ETF applications amid a crowded slate of meetings between the SEC and more than a dozen hopefuls. With analysts at JP Morgan bloomberg It was pointed out that one or more Bitcoin ETFs will likely be approved in January 2024.
Other countries have performed at a faster pace, with Bitcoin ETFs launching in Canada, Brazil, and Europe.
What is an ETF?
- 💸 An ETF is an investment vehicle that is publicly traded like a stock, but tracks the performance of an underlying asset or index rather than a single company.
- 🛢️ ETFs are a way for investors to gain exposure to the value of underlying assets such as gold or oil.
- 📈 ETFs are traded on traditional stock exchanges, and their value should rise when the price of the asset rises and fall when it falls.
Did you know?
The first ETF was launched in 1993 and became popular as a way for individual investors to invest in multiple assets at once. If you want to invest in 500 of the largest U.S. companies at the same time, you can buy shares of the S&P 500 ETF.
Bitcoin ETFs work in much the same way as other ETFs. Investors can purchase shares of the ETF through a brokerage that buys the shares and trade them in the same way they would trade shares of Apple or Tesla.
2x Bitcoin ETF $BITX It is scheduled to be released on Tuesday. I doubted that would happen, but it looks like it’s official. Could this be an early sign of SEC Lightning? later $LITTLE Release I think they withdrew the 2x filer earlier pic.twitter.com/XXxSt9xypu
— Eric Balchunas (@EricBalchunas) June 23, 2023
Bitcoin ETF tracks the current. bitcoin priceYou must act in accordance with Bitcoin’s price fluctuations.
Why do you need a Bitcoin ETF?
So why aren’t investors buying Bitcoin?
For most retail investors, Bitcoin and cryptocurrencies in general still seem risky.
Not only are the regulations related to owning Bitcoin unclear, but bitcoin wallet Trust in cryptocurrency exchanges is still uncharted territory for those unfamiliar with cryptocurrency exchanges and requires a certain level of self-education.
Holding Bitcoin puts the security burden entirely on you, and you are responsible for keeping your private keys safe (unless you want to hand them over to an exchange). This may mean purchasing: hardware wallet To protect the Bitcoin you purchase or store your private keys in a secure manner. You should also research how to report taxes on Bitcoin sales that result in capital gains.
With a Bitcoin ETF, investors don’t have to worry about private keys, storage, or security. They own ETF shares just like stock shares and can gain exposure to the cryptocurrency market without having to go through the trouble of buying and holding cryptocurrencies.
And to be clear, this is a very attractive proposition for many ordinary people as well as sophisticated institutional investors.
This is why numerous hedge funds and other investment firms have filed Bitcoin ETF applications with the U.S. Securities and Exchange Commission (SEC). Gemini founders Cameron and Tyler Winklevoss first applied for the Winklevoss Bitcoin Trust in 2013. In 2018, the U.S. Patent and Trademark Office granted the Winklevoss brothers a patent for a “goods traded in exchange.” However, 10 years after the Winklevoss twins’ attempt, the SEC has yet to approve an application for a spot Bitcoin ETF.
How does a Bitcoin ETF work?
Bitcoin ETFs are managed by companies that purchase and hold actual Bitcoin. The price is pegged to the Bitcoin held in the fund. Companies list ETFs on traditional stock exchanges, and you, the investor, trade ETFs like any other stock. Bitcoin ETFs also offer new types of trading opportunities, including short selling, which allows investors to bet on Bitcoin.
However, there are also some key differences between Bitcoin ETFs and other ETFs.
First, some ETFs, such as those tracking the S&P 500, represent equities, which allows any company in the ETF to take a cut of the dividends it pays to shareholders. If Tesla pays a dividend and you hold the stock in an ETF that includes Tesla, you receive a (smaller) dividend. This does not happen with Bitcoin ETFs because Bitcoin is decentralized.
Second, like any other ETF, you have to pay a fee to the company offering the ETF. However, in the case of Bitcoin ETFs, a portion of the fees are used to pay storage and management fees for purchasing and storing the Bitcoin underlying the ETF.
A brief history of Bitcoin ETF progress
- July 2013: Winklevoss Bitcoin Trust has submitted its first Bitcoin ETF proposal.
- June 2018: SEC Rejects Winklevoss’ Second Bitcoin ETF Proposal
- October 2019: SEC Rejects Bitwise’s Bitcoin ETF Proposal
- February 2020: Wilshire Phoenix becomes the latest Bitcoin ETF project to be rejected by the SEC.
- September 2020: The world’s first Bitcoin ETF has been listed on the Bermuda Stock Exchange.
- December 2020: VanEck submits a proposal for a Bitcoin ETF after withdrawing his previous proposal several times before being officially rejected.
- February 2021: Purpose Bitcoin ETF (BTCC), Canada’s first Bitcoin ETF, has been launched. Two more are scheduled to be approved in the same month: Evolve Bitcoin ETF (EBIT) and CI Galaxy Bitcoin ETF (BTCX).
- October 2021: Launch of roShares Bitcoin Strategy ETF (BITO), the first Bitcoin-linked ETF in the United States. Although it does not hold Bitcoin itself on its balance sheet, it tracks the price of Bitcoin through related assets.
- June 2023: The SEC has approved Volatility Shares’ 2x Bitcoin Strategy ETF (BITX) and the first leveraged Bitcoin futures ETF.
- August 2023: London-based Jacobi Asset Management has launched Europe’s first Bitcoin ETF.
- August 2023: A U.S. judge has ordered the SEC to deny Grayscale’s application to convert the Grayscale Bitcoin Trust.GBTC) Review spot Bitcoin ETF.
- October 2023: After the SEC denied the appeal, the U.S. Court of Appeals formally ordered the SEC to review Grayscale’s application.
- December 2023: SEC Chairman Gary Gensler said regulators were “taking a fresh look” at spot Bitcoin ETF applications and were reviewing “eight to 12 filings.”
What’s special about Bitcoin ETFs?
Bitcoin ETFs in the United States are expected to bring a new level of mainstream credibility and acceptance to Bitcoin investments. In 2020 and 2021, large public companies including Square and Tesla purchased Bitcoin as investments for their balance sheets, sparking new adoption. However, cryptocurrencies are still considered a risky bet or even a gimmick by many conservative investors.
The SEC’s approval of a spot Bitcoin ETF means it will be easier for institutional investors to speculate on Bitcoin price. This will functionally bring Bitcoin to Wall Street, with Bitcoin ETFs trading through the same venues as Tesla stocks, bonds, gold, oil, or other traditional assets.
And this is likely to result in a massive rise in the price of Bitcoin.
Did you know?
Cannabis ETFs have become popular for many of the same reasons as Bitcoin ETFs. Like cryptocurrencies, the marijuana industry is still considered risky and uncertain by traditional investors looking for a chance to profit.
