What is A Bitcoin Spot ETF?
#Basic
#Bitcoin
#Beginners
#Basic Concepts
In 2013 and 2018, the Winklevoss twins submitted Bitcoin Spot ETF applications twice, both of which were rejected by the SEC. As of 2023, an increasing number of financial institutions are joining the queue to apply for Bitcoin Spot ETFs.
Why is there a growing interest in applying for Bitcoin Spot ETFs, and why are Bitcoin Spot ETFs attracting so much attention? These are the questions this article will analyze and answer.
1. What is Bitcoin Spot ETF?
ETF stands for Exchange Traded Fund, which is a type of investment fund similar to stocks that can be traded on a securities exchange.
ETFs use a form of physical collateralization to securitize specific assets. Investors only need to purchase shares of the fund issued by the institution, allowing them to indirectly hold the corresponding exposure to the underlying investments.
A Bitcoin ETF refers to an exchange-traded fund that holds Bitcoin as its underlying asset. When users purchase a Bitcoin spot ETF, they are essentially buying Bitcoin, but in reality, they do not directly hold Bitcoin. As of now, there is still no actual Bitcoin spot ETF available.
2. Bitcoin Spot ETF Advantages
1. Regulatory Compliance: Bitcoin Spot ETFs are traded on traditional securities exchanges and are subject to regulatory oversight by relevant institutions. Regulated markets instill more confidence and provide assurance for investors.
2. Low Investment Threshold: There is no need to learn and master crypto specifics, like using digital wallets. Packaging Bitcoin ETFs as traditional financial product trading methods reduces entry barriers for investors.
3. Cost-Effective: Bitcoin Spot ETFs typically incur lower costs compared to directly buying BTC, making it attractive for cost-conscious investors.
4. Security: Users acquiring Bitcoin Spot ETFs do not actually hold physical Bitcoins. While earning profits from fluctuations in Bitcoin prices, they are free from the risk of loss or theft associated with digital wallets.
3. How Are Bitcoin ETFs Distinct from Bitcoin Investment Trusts?
Investment trusts are closed-end investment funds listed on stock exchanges. In the cryptocurrency space, Grayscale's GBTC is an example of a Bitcoin trust product.
The main difference between ETFs and trust products lies in the fact that ETFs are open-ended, with market makers freely creating and redeeming units, ensuring sufficient liquidity. In contrast, investment trusts are closed-ended, not easily created, and lack active redemption plans.
ETFs can be bought and sold by day traders, while investment trusts can only be traded once at the end of the trading day. The costs associated with ETFs are typically lower than those of investment trusts.
4. Bitcoin Spot ETF Application Timeline
In 2013, the Winklevoss brothers submitted an S-1 document to the SEC, formally indicating their intention to launch an ETF linked to Bitcoin. In 2018, they submitted another application, but both applications were rejected by the SEC.
In August 2018, the asset management company VanEck submitted a Bitcoin Spot ETF application, withdrew it in September and then resubmitted applications in March 2021 and June 2022, all of which were rejected by the SEC.
In April 2021, the asset management company Valkyrie Investments submitted a Bitcoin Spot ETF application, which was rejected by the SEC in December.
In May 2021, Fidelity submitted a Bitcoin Spot ETF application, which was rejected by the SEC in February 2022.
In June 2021, ARK Invest collaborated with the Swiss ETF provider 21Shares to submit an application for the ARK 21Shares Bitcoin ETF. This application was rejected by the SEC in April 2022. They submitted it again in May of the same year, but it was once more rejected in January 2023.
In July 2021, New York fund management company Global X submitted an application which was rejected by the SEC in March 2022.
In October 2021, Bitwise submitted its first Bitcoin Spot ETF application. It was rejected by the SEC in June 2022.
On October 19, 2021, the U.S. approved the first Bitcoin futures ETF.
Grayscale simultaneously applied to convert GBTC to a Bitcoin Spot ETF. The application was rejected by the SEC in June 2022, citing insufficient efforts by the company to prevent potential fraud. Grayscale took the SEC to court and won in August 2023.
In December 2021, WisdomTree submitted a Bitcoin Spot ETF application, which was rejected in October 2022.
In April 2023, ARK Invest and 21Shares submitted their third Bitcoin Spot ETF application.
In June 2023, BlackRock, Valkyrie submitted Bitcoin Spot ETF applications.
From July to August 2023, WisdomTree, VanEck, Fidelity/Wise Origin, Bitwise, Global X submitted applications to the SEC once again.
On January 10, 2024 (EST), the SEC granted approval for the first batch of 11 Bitcoin ETFs to be listed in the United States.
5. Bitcoin Spot ETFs' Market Impact
Despite the significant development of cryptocurrencies in recent years and growing interest in the field, the scale of the cryptocurrency market remains relatively small compared to traditional finance. The approval of a Bitcoin spot ETF represents mainstream market acceptance and recognition, which is likely to further enhance Bitcoin's acceptance among investors.
The approval of a Bitcoin Spot ETF is expected to attract a larger influx of capital, increasing liquidity in the entire cryptocurrency market. It represents the significant exposure and popularization of Bitcoin, allowing more users to become acquainted with, understand, and participate in the cryptocurrency space.
More importantly, the Bitcoin spot ETF obtaining approval represents a legal recognition of the financial product status of Bitcoin by regulatory authorities in the United States. This marks another milestone in the history of Bitcoin development.
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