Spot Bitcoin ETFs Explained: Everything You Need to Know (Newshuntz)

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Spot Bitcoin ETFs Explained: What impacts could the arrival of spot Bitcoin ETFs have on the dynamics of the cryptocurrency market? How much can these financial instruments contribute to the mass adoption of Bitcoin? 

In this article, find everything you need to know about the imminent arrival of spot Bitcoin ETFs in the United States.

What is an ETF?

An ETF, or Exchange-Traded Fund, is a type of investment fund that trades on stock markets and tracks an index, sector, commodity, or other assets. ETFs offer an easy way to access diversification. 

This is even more true when it comes to cryptocurrencies since they allow exposure to this asset class directly on a securities account and without ever interacting with the blockchain.

What is the difference between a spot ETF and a futures ETF?

Spot ETFs and Futures ETFs are 2 types of Exchange-Traded Funds that differ primarily in the way they gain exposure to the underlying assets.

When it comes to spot ETFs, they invest directly in the underlying assets. For example, a spot platinum ETF would physically hold platinum. Futures ETFs, for their part, invest in futures contracts on the assets in question. [Spot Bitcoin ETFs Explained]

Bitcoin ETFs already available on the American market

Bitcoin futures ETFs are already available on the American market. We will cite the VanEck Bitcoin Strategy ( XBTF ) available on the Chicago Mercantile Exchange ( CME ) but also the Valkyrie Bitcoin Futures Strategy ( BTF ) listed on Nasdaq. 

Read also: Cryptocurrency Trading Strategies You Need To Know?

Finally, let us mention the ProShares Bitcoin Strategy ( BITO ) listed on the New York Stock Exchange ( NYSE ) therefore more accessible and also offers the particularity of providing returns very close to those of spot Bitcoin.

Where are we on the possible approval of a spot Bitcoin ETF?

Why is the Spot Bitcoin ETF so eagerly awaited?

Beyond purely technical reasons such as the risk of contango (higher futures contract prices at the time of contract rolling), a spot ETF is deemed simpler, understandable, and above all more transparent for investors because it directly reflects the price of the underlying asset. 

As a result, it is commonly accepted that most American investors will not gain exposure to Bitcoin other than through a spot ETF.

List of applications filed with the Securities and Exchange Commission (SEC)

Since the first request filed in 2013, the Security and Exchange Commission ( SEC ) has so far systematically rejected all the projects presented, arguing risks inherent to the cryptocurrency market and insufficient protection for investors.

To date, there are more than a dozen spot Bitcoin ETF applications filed awaiting a decision from the SEC:

IssuerTickerFinal deadline
Ark and 21SharesARKBJanuary 10, 2024
BitwiseBITBMarch 14, 2024
VanEckHODLMarch 15, 2024
WisdomTreeBTCWMarch 15, 2024
BlackRockIBITMarch 15, 2024
FidelityFBTCMarch 15, 2024
Invesco and GalaxyBTCOMarch 15, 2024
ValkyrieBRRRMarch 19, 2024
Global X/March 19, 2024
HashdexCHALLENGE/
Pando AssetPBTC/
Franklin Templeton//

What the court decision regarding Grayscale and the arrival of BlackRock, Invesco, and Fidelity changes

The court decision last August, favorable to Grayscale Investments in its dispute with the SEC which had rejected its request to convert its Grayscale Bitcoin Trust (GBTC) into a spot ETF, profoundly changed the situation.

The judge rejects, in fact, most of the arguments presented so far by the SEC to refuse any Spot ETF.

Furthermore, the filing of the request from the behemoth BlackRock for its spot ETF and the concomitant requests from Invesco and Fidelity change the balance of power in a very decisive way. 

According to Bloomberg analysts, the probability of a favorable response from the SEC for the approval of a spot Bitcoin ETF would now be 90%. [Spot Bitcoin ETFs Explained]

The imminence of a decision?

The date of January 10, 2024, is the consensus as the ultimate deadline for Gary Gensler (who heads the SEC). It is in fact at this deadline that a final decision must be made concerning the request filed by Ark Invest and 21Shares.

In the event of a favorable decision, the SEC would likely at the same time validate all of the other spot Bitcoin ETFs meeting the conditions set by the regulator.

Why would an approval be a “game changer”?

The consequences of a probable massive influx of liquidity

For Benoit Pellevoizin, general manager of CoinShares France, an approval of a spot Bitcoin ETF in the United States would cause a massive influx of liquidity, evoking $14 billion in inflow in the first year.

However, this demand shock would occur in the context of an illiquid market (when we look at it through the prism of traditional finance) even though 75% of BTC in circulation has not moved for more than 300 days.

Like many, he therefore announces a probable spectacular increase in the value of the asset. [Spot Bitcoin ETFs Explained]

A prerequisite for mass adoption of cryptocurrencies?

Beyond the potential increase in the valuation of Bitcoin, it is above all the consequences in terms of mass adoption that are attracting attention.

Offering every American the possibility of putting Bitcoin in their securities account, if only to diversify their investments, makes cryptocurrencies as a whole much more attractive and will, without a doubt, lead to their adoption by most large numbers in a country where financing retirement is an individual matter.

The trigger for a domino effect?

As is often the case, Bitcoin is presented as the foot in the door, the pathfinder that opens the way. Ether (2nd most capitalized cryptocurrency on the market), very popular with American financiers and essential to the functioning of decentralized finance (DeFi) would, without a doubt, benefit from the momentum to in turn obtain a dedicated spot ETF in the process.

Reasons to pay attention

The massive arrival of liquidity cannot be seen as bad news. However, it is important to remain lucid and attentive.

The market rarely delivers the expected result when there is such a consensus and it is always appropriate to question the interest of the messenger of the message delivered. The hackneyed phrase “ buy the rumor, sell the news ” must stick in everyone’s minds.

On a more structural level, let us remember that what makes Bitcoin strong remains its undesirability due to the improbability of a 51% attack. Vigilance must remain required on this point: the arrival of players as financially powerful as BlackRock makes it less improbable for a few to take control of the protocol, but if the interest in launching an attack on Bitcoin is futile.

Additionally, Coinbase executives have warned of at least 2 potential issues that could arise when launching spot Bitcoin ETFs:

  • Issuers, who will have to purchase enough BTC to hold them in their ETFs, risk facing a shortage of “regulated” BTC;
  • The arbitrage strategy is known as institutional “basis trade”, which consists of taking advantage of the difference between the spot price of BTC and the price of Bitcoin futures contracts.

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