What Is Spot Bitcoin ETF and How It Affects the Price of Crypto
Bitcoin ETF has been one of the hottest topics of discussion in the crypto community for several months. Perhaps it is the talk about the emergence of ETFs that has become the main driver of Bitcoin's recent growth, in which we discuss what ETFs are and how the SEC's decision to approve or ban them may affect the cryptocurrency market.
What Is a Bitcoin ETF?
Crypto ETFs track cryptocurrency prices by investing in portfolios linked to their instruments. They trade on stock exchanges like other ETFs, and investors can hold them in standard brokerage accounts. By buying shares of such funds, investors can earn the growth of the cryptocurrency exchange rate. The company buys Bitcoin, and the participants buy a share therein, which allows them to earn on the growth of the exchange rate.
ETFs are traded on exchanges; buying and selling them is very similar to investing in stocks, but there are differences. If a stock is always the security of one company, then an ETF may consist of a basket of assets.
In addition, an ETF allows you to bypass direct investments, since the investor does not invest in an asset but in an ETF. Thus, even if the ETF consists of cryptocurrencies, the investor formally invests money not in them, but in the fund itself, which does not contradict the laws of countries in which the use of cryptocurrencies is prohibited.
Cryptocurrency ETFs can be of two types:
- Spot ETF. An investment is the purchase of a share of a fund consisting of cryptocurrency;
- Derivative ETF. Purchase a share of a fund that consists of derivatives and derivative financial instruments based on other assets. For example, it can be a futures contract for BTC that specifies the conditions for its completion and purchase price
At the moment crypto community is expecting approval of only spot Bitcoin ETF, but if it’ll be approved, we can expect further easing of regulation of crypto ETFs.
Why Are Bitcoin ETFs important?
Cryptocurrencies are not legal everywhere, and companies that want to invest part of their budget in digital assets and earn money cannot do so.
In countries where cryptocurrency is legal, there is another problem, namely, a conservative investment strategy. Let us consider any public organization (an organization whose shares are traded on stock exchanges). The Board of Directors often makes investment decisions. If it does not consist of millennials (the main target audience of the cryptocurrencies industry), the probability of buying cryptocurrencies is close to zero.
Approval of the Bitcoin ETF solves both problems:
- An ETF is a completely legal product that allows cryptocurrencies to be invested without formally investing in cryptocurrencies.
- ETF investments are much more common for large companies and institutional investors.
It is important to note that regulations regarding cryptocurrencies and ETFs vary by country and are subject to change. It is recommended to consult the specific legislation and regulations in your country to determine the legal status of these financial instruments.
Because of ETFs, investors do not need to set up a digital wallet on their own and learn how to work with it, which makes investing in bitcoin more affordable. Therefore, the approval of a Bitcoin ETF can attract significant investments from outside the industry.
The SEC is expected to make its decision on January 10, 2024, but it can either approve or postpone the registration of spot Bitcoin ETFs. As the last few months have shown, this decision, whatever it is, will accurately affect the state of the cryptocurrency market and the price of BTC.
Spot Bitcoin ETF: Expert Forecasts
Companies are still waiting for SEC's decisions. Bernstein analysts believe that a new wave of launch applications will turn out to be a success. Jeremy Allaire, co-founder and CEO of Circle, shares the same opinion. The current status of the Bitcoin ETF approval by the SEC is positive. There are strong indications that the SEC is on the brink of approving the first spot Bitcoin ETF in the U.S. after 10 years of failed applications.
Experts at the Standard Chartered Bank believe that if a spot Bitcoin ETF is approved in the United States, the price of the first cryptocurrency could reach $200,000 by the end of 2025.
Source & Copyright © Lark Davis X
Analyst Henrik Zeberg made an even more optimistic forecast: In his opinion, the Bitcoin exchange rate could reach $115,000 to $250,000 in 2024.
Valkyrie was one of the first to send the corrected S-1 form to an agency. This was followed by companies such as:
- Grayscale Investments;
- Galaxy Digital;
- Ark Invest and 21Shares.
However, there are still some concerns. Henry Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC), has expressed concerns about the high volatility and risks associated with assets, including Bitcoin spot ETFs.
Source & Copyright © Garry Gensler X
His statements may suggest a potential refusal to approve these ETFs. However, the final decision of the SEC does not solely depend on him; it is impossible to predict the outcome based solely on Kensler's tweets.
The U.S. Securities and Exchange Commission (SEC) is being investigated for alleged market manipulation following a fake tweet about a Bitcoin ETF. This incident occurred on January 10 and significantly affected the market, causing the price of Bitcoin to drop from $48,000 to $45,695.
The cryptocurrency market is currently at a crossroads, and its future now seriously depends on decisions regarding spot Bitcoin ETFs. Their approval could result in a rise in the capitalization of BTC and the entire cryptocurrency market, drawing in new investors, and encouraging broader adoption of cryptocurrencies. However, rejecting an ETF may lead to market disappointment, resulting in a temporary decrease in cryptocurrency prices.