1/11/2024

SEC approves spot Bitcoin ETFs

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Key points:

  • The first exchange-traded funds (ETFs) to track Bitcoin have been approved in the US.
  • Approved ETFs will be listed on Nasdaq, NYSE and CBOE.
  • Spot Bitcoin ETFs allow investors to gain exposure to the price of Bitcoin without the complications and risks associated with directly owning Bitcoin.

The US Securities and Exchange Commission (SEC) has approved the first Bitcoin ETFs, a significant development for the world’s leading cryptocurrency and the broader crypto sector. This follows a decade of deliberations.

The SEC granted authorization to 11 applications, including those from BlackRock, Ark Investments/21Shares, Fidelity, Invesco, and VanEck, despite some officials’ concerns about the products’ risks.

As of Wednesday, Bitcoin’s market capitalization exceeded $913 billion, according to CoinGecko. As of December 2022, total net assets of US-based ETFs stood at $6.5 trillion, according to the Investment Company Institute.

Analyst sentiments

As trading prepares to begin on Thursday, the first Bitcoin ETFs are set to ignite a fierce battle for market dominance. These groundbreaking funds empower investors to gain exposure to the world’s most prominent cryptocurrency without having to hold it directly.

Standard Chartered analysts predict that ETFs could attract up to $100 billion in capital this year alone, with inflows estimated to reach $55 billion over the next five years.

The success of attracting these investments is expected to be heavily influenced by factors such as fees and liquidity. Some issuers have lowered their proposed fees in recent filings, including BlackRock and Ark/21Shares. Fees range from 0.2% to 1.5%, with some providers offering fee waivers for a limited time.

How ETFs work

The first Bitcoin ETFs will debut on Nasdaq, NYSE, and CBOE, providing investors with a convenient and regulated way to gain exposure to the cryptocurrency market. These ETFs will hold physical bitcoins purchased from reputable crypto exchanges and stored through intermediaries like Coinbase Global (COIN.O). Issuers have set fees ranging from 0.20% to 0.8%, significantly lower than the average fee for traditional ETFs.

 

Will this be different from buying Bitcoin directly?

Yes, spot Bitcoin ETFs offer a convenient and regulated way for investors to gain exposure to the price of Bitcoin without having to directly manage the cryptocurrency themselves.

Directly owning Bitcoin involves several complexities and risks, including the need to create and manage crypto wallets, store private keys securely, and navigate the often-volatile cryptocurrency markets.

ETFs, on the other hand, are listed on major stock exchanges and can be purchased through traditional brokerage accounts. This provides investors with the benefits of regulated markets and easy accessibility.

Moreover, ETFs can potentially attract institutional investors, who are often restricted from investing in alternative assets like Bitcoin due to regulatory constraints.

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