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Spot Bitcoin ETFs: Opening the Door to Mainstream Crypto Investment

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As the crypto sphere continues to develop and expand, it has captured the attention of numerous investment and finance giants. While Exchange-Traded Funds (ETFs) are well-established in traditional finance, Spot Bitcoin ETFs represent a bridge between the crypto and traditional investment worlds. They emerge as a shiny new option for conventional investors seeking to dip their toes into the finance of the future.

What is a Spot Bitcoin ETF, and How Does It Work?

An ETF is traded on major exchanges, which are quite like stocks. They can be bought and sold throughout the trading day at prices that are in line with the underlying asset. Whereas, a Spot Bitcoin ETF is an open-ended fund that can be used to issue or redeem shares based on demand. It’s designed to track the spot price of Bitcoin closely.

To illustrate how it works, you can imagine this: a Spot Bitcoin ETF operates like a coupon system for a jar of candy. Instead of sharing the candy directly (because that’ll leave you with less candy), you create coupons representing its value. These tickets are then bought and sold among friends, with their prices fluctuating based on the demand for candy. In this analogy, the jar of candy symbolises Bitcoin, and the tickets represent the Spot Bitcoin ETF. The ETF mirrors Bitcoin’s price by securely holding some Bitcoin. You can then trade ETF shares on a stock exchange, just like any other stock, with its value tied to Bitcoin’s ever-changing worth, which is driven by supply and demand.

Why is there a Sudden Public Interest in Spot Bitcoin ETFs?

The recent surge in interest in Spot Bitcoin ETFs can be attributed to several developments:

BlackRock’s Application

BlackRock, a financial behemoth, filed an application with a high chance of approval by the SEC (Securities and Exchange Commission) on June 15, 2023. They boast a 575-1 chance of the SEC approving their applications, which is nothing to snuff at. Their involvement adds credibility to the space.

SEC’s Actions Against Binance and Coinbase

This happened slightly before BlackRock’s Spot Bitcoin ETF application.
If you’ve seen some news about the SEC is arguing if Bitcoin is a security or a commodity or if it’s even suitable to trade on exchanges, this is probably why those debates started up in the first place.

Pressure for Approval

Several applications for Spot Bitcoin ETFs have been submitted to the SEC, including those from Bitwise, VanEck, WisdomTree, Fidelity, and Invesco. However, the US Government’s shutdown has delayed decisions on these proposals until 2024.

Appeals and Rejections

Some applicants, such as Grayscale and Fidelity, have appealed their rejections, prompting the SEC to hit the books, and come back with a more valid reason, or reconsider their decisions.

Precedents for a Spot Bitcoin ETF

While Spot Bitcoin ETFs have been established outside the US, in the EU, Canada, and Brazil, the US has yet to approve any. However, it’s worth noting that the Jacobi Bitcoin ETF on Euronext Amsterdam stock exchange has Fidelity as its custodian. These non-US versions often lack popularity due to limited marketing and lesser-known fund managers.

What sets US Spot Bitcoin ETFs apart from their international counterparts?

In the US, Spot Bitcoin ETFs face a complex regulatory landscape that has led to rejections and appeals. For example, Grayscale’s Spot Bitcoin ETF application was initially rejected but is appealing their application. Now that BlackRock has filed for one, this might potentially lead to the approval of multiple Spot Bitcoin ETFs in future.

What Does This Mean for the Market?

The introduction of a Spot Bitcoin ETF has several implications:

Access for Retail Investors

Retail investors who were hesitant to invest in Bitcoin directly can now gain exposure to it through a regulated investment vehicle. They can even potentially incorporate it into their retirement savings, such as their 401(k) plans.

Reduced Entry Barrier

Now investors have the choice to go with a Spot Bitcoin ETF to hop into crypto hype, rather than to learn the ins and outs of a totally new field. Not to mention the security precautions to handle cryptocurrency properly can be overwhelming for beginners to learn.

Sceptical Views

Some DeFi knights detest the idea of a Spot Bitcoin ETF, fearing that it might centralise Bitcoin. The SEC’s actions, such as the Binance and Coinbase lawsuits, only add to these concerns.

What Does This Mean for Traders?

For the near future, it’s hard to figure out Bitcoin’s short-term progress with the uncertainty revolving around the regulations. On the bright side, we can see that there’s plenty of institutional interest in Bitcoin, which could potentially drive a bull market, benefiting all market participants.

In conclusion, the emergence of Spot Bitcoin ETFs presents both opportunities and challenges. While it offers broader access to Bitcoin for investors, it also raises concerns about centralisation and regulatory influence in the crypto space. As the debate continues, it’s clear that Bitcoin is inching closer to mainstream finance, with supporters and sceptics alike closely watching its progress.

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