In this article we will be discussing why a bitcoin spot ETF is such a big deal and why you as a bitcoin or crypto investor should care.
Right now, the ‘crypto’ space exists in a very grey area with currently no regulatory body having dominion over it OFFICIALLY. Despite no official clarity on the crypto space the SEC (securities and exchange commission) seems to think it has the authority to regulate this space baring spot bitcoin, which it has previously said is not a security but made little comment sins, the SEC right now has launched a number of lawsuits such as the one against coinbase and binance where it has listed multiple cryptocurrencies as reason for their lawsuits as the exchanges ‘facilitated the trading of unregistered securities’. Crypto currencies haven’t yet been Officially classified as either securities or commodities in the united state and as a result of this they reside in a grey area making them very hard for larger institutions to get involved with. A spot Bitcoin ETF would give the green light for institutions to HOLD bitcoin legally and likely open the flood gates.
The Current State Of bitcoin spot ETFs within the US:
Right now the largest financial institutions in the world have all filed plans to launch a bitcoin SPOT ETF in the united stages the Biggest of which is the largest financial institution in the world BLACKROCK. This has only occurred this year 2023, although attempts to file for bitcoin spot ETFs had happened before hand by the likes of greyscale (Behind GBTC) and Ark Invests, and actually the Winklevoss twins applied for a bitcoin trust 10 years ago.. with the SEC to little success
One question you may be asking is if the SEC do not see bitcoin as a security (mainly due to there being no one entity to pin it to) then why would they need to approve a spot ETF. Well the security and exchange commission has dominion over securities which a spot ETF would become as it is a derivative (stock) of bitcoin all be it backed by spot bitcoin (meaning its redeemable for the exact % of bitcoin a share represents.
Just this Thursday just gone (31st of august) the SEC delayed making a decision on the approval of all the bitcoin spot ETFs that had First deadlines for the 2nd of September, pushing them back to the earliest October 16/17th 2023
Here are the SEC’s comments on the matter: “The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change and the issues raised therein,”
Right now bitcoin spot ETFs exists and are okayed by the appropriate regulators in Europe, Australia and Canada they even have a Ethereum Spot ETF in Canada. In the US you currently Have Bitcoin futures (CME) and leverage bitcoin futures that where okayed by the SEC but they seem to be dragging their feet on a bitcoin SPOT ETF which is arguably safer for investors, then futures or leveraged futures bitcoin traded products. The difference between futures product and a spot product like an ETF is that futures don’t need to be backed by the asset they track a spot ETF does and this is likely why the SEC is dragging its feet as they know it will open the flood gates for institutions to own bitcoin…. An ETF is inevitable at this point.
So now onto why a bitcoin spot ETF is such a big deal:
Simply a Bitcoin spot ETF would have to be backed by actual bitcoin meaning that the large institutions that wish to facilitate one would have to own and custody bitcoin (BlackRock have chosen Coinbase). A bitcoin spot ETF is just basically bitcoin as the ETF shares represent the underlying bitcoin. It sounds crazy and it sounded even crazier 7 years ago but if a bitcoin spot ETF was approved that means it could be held in pensions / mutual funds and by big investment companies looking to speculate on the price! A bitcoin spot ETF would give bitcoin in the united states the legitimacy it needs to become an asset and would likely take a seat on all major fund manager and eventually pension managers balance sheets even if just a small %. You may be saying to yourself why on earth would they hold something as risky as bitcoin….. well for alpha you see!! Asset managers seek a large variety of assets to decrease their risk… by adding risky uncorrelated assets to your portfolio, the more you add the more your risk actually decreases believe it or not… and bitcoin would become ironically a perfect way to decrease portfolio risk!!! AMAZING
Lets look at some examples of other assets and what happened to them with the introduction of ETFs:
The first ever ETF came out of Canada in 1990, after that in 1993 the united states first ETF launched (S&P 500 SPDR) today there are trillions of dollars in S&P 500 ETFs from investors!! Lets look at what happened to the S&P 500 once a exchange traded fund was listed for it:
As ETFs where such a success other things besides stocks started to warrant ETFs, like gold a good example in regards to why a bitcoin Spot ETF could be such a big deal: in 2003 Australia launched its first gold ETF, in November 2004 a gold ETF hit the American stock exchange SPDR gold shares on the Nasdaq under: GLD. Below is what happened to golds price after that….
A spot bitcoin ETF changed the game for bitcoin and catapults it into the big leagues and opens it up as a legal viable investment for institutions… when BlackRock got the green light for a gold ETF it became a hot topic from sources to start promoting to their clients as a way to diversify, the same things will happen to bitcoin and this is at most coming early 2024, when the halvening will occur shortly after… explosive times ahead strap in and enjoy the ride!!