Approval of the first-ever batch of exchange-traded funds (ETFs) for spot Bitcoin (BTC) by the United States Securities and Exchange Commission (SEC) has sparked excitement among the global crypto community. The SEC has given the go-ahead to 11 applications, including those from BlackRock, ARK Invest, Fidelity, VanEck, and Invesco.
This groundbreaking moment is set to revolutionize Bitcoin by allowing institutional and retail investors to invest in the leading cryptocurrency without actually holding it. Instead of purchasing Bitcoin on a crypto exchange like Binance or Coinbase, investors can buy the Bitcoin ETF to gain exposure to BTC.
Compared to Bitcoin, holding Bitcoin ETFs offers several advantages. Investors can buy a product that tracks the price of Bitcoin through the same mechanism used for index funds. ETFs simplify the process for investors as they can manage their holdings without the need for a crypto wallet or cold storage.
Bitcoin ETFs provide access to Bitcoin for registered investment advisers (RIAs), retirement funds, and other institutions. Individuals and entities previously restricted from investing in digital assets or who had reservations about this asset class can now hold BTC.
The term “spot” in spot Bitcoin ETF refers to the actual ownership of assets, rather than a derivative contract. Each investor will own a portion of Bitcoin. Investors also have the option to buy Bitcoin futures ETFs, which involve agreeing to buy or sell BTC at a specific price on a predetermined date, regardless of the market price. Bitcoin ETFs can be bought and sold as frequently as desired during trading hours.
The SEC approved spot Bitcoin ETFs on January 10 from major fund managers. These approved ETFs include the Grayscale Bitcoin Trust (GBTC), BlackRock’s iShares Bitcoin Trust (IBIT), the Bitwise Bitcoin ETF (BITB), Fidelity’s Wise Origin Bitcoin Trust (FBTC), the ARK 21Shares Bitcoin ETF (ARKB), the Invesco Galaxy Bitcoin ETF (BTCO), VanEck’s Bitcoin Trust (HODL), Franklin Templeton’s Franklin Bitcoin ETF (EZBC), the WisdomTree Bitcoin Fund (BTCW), the Hashdex Bitcoin ETF DEFI, and the Valkyrie Bitcoin Fund (BRRR).
The approved spot Bitcoin ETFs will be listed on several U.S. stock exchanges, including the New York Stock Exchange (NYSE), the Chicago Board Options Exchange (CBOE), and the Nasdaq.
In October 2021, the SEC also approved Bitcoin futures ETFs, which track agreements to buy or sell BTC at a predetermined price. The first Bitcoin-linked ETF to receive SEC approval was the Proshares Bitcoin Strategy ETF (BITO), listed on the New York Stock Exchange.
While traditional ETFs offer diversified baskets of assets, Bitcoin ETFs are linked solely to Bitcoin, making them susceptible to the same volatile swings as BTC.
There are various ways to buy Bitcoin ETFs. Online brokerage accounts like Charles Schwab, Fidelity, Robinhood, and Interactive Brokers allow users to search for the fund and trade it. Cryptocurrency exchanges such as Kraken and Coinbase have plans to roll out ETFs. Financial advisers in the U.S. are also showing interest in crypto equity ETFs. Robo-advisors like Wealthfront and Betterment provide easy access to Bitcoin ETFs through low-cost automated investing platforms. Traditional banks can also facilitate the purchase of Bitcoin ETFs through brokerage accounts.
To buy BTC ETFs via brokerage services, individuals need to open a brokerage account, fund the account using a linked bank account, conduct research on available Bitcoin ETFs, select preferred ETFs, place an order, and regularly monitor investments.
The SEC’s approval of 11 spot Bitcoin ETFs presents an opportunity for institutional and retail investors to invest in a more regulated environment. With fierce competition among ETFs, many have reduced their fees for managing the products. BTC ETFs are expected to bring significant funds into the crypto ecosystem, potentially integrating Bitcoin into the global financial mainstream as other countries follow suit.
While regulators have only approved Bitcoin ETFs, there is hope that ETFs for other major cryptocurrencies will eventually receive approval. The crypto community remains optimistic, viewing these current approvals as a positive sign for the future of broader cryptocurrency ETFs.
Please note that this article does not provide investment advice or recommendations. Readers should conduct their own research and make decisions based on their own risk tolerance.