Bitcoin-ETF
A few enthusiastic companies buy cryptocurrency on the OTC market, but the trend of buying cryptocurrencies has not yet reached the mass consumer and large investment funds.
The presence of high-level financial institutions opens up the crypto market to those investors in the U.S. who are wary of coming into direct contact with cryptocurrencies. Therefore, there is a need to have access to the market without having to own cryptocurrencies directly.
Exchange Traded Funds (ETFs), whose shares are traded on stock exchanges like stocks, have this property.
A bitcoin ETF is an exchange-traded fund backed by bitcoins or contracts linked to the bitcoin price and traded on traditional stock exchanges like regular company shares. With it, investors can capitalize on bitcoin price movements without directly owning or managing the asset.
Such funds are a kind of bridge to the world of cryptocurrencies for traditional investors.
Because ETFs are traded on conventional stock exchanges, they bring bitcoin into the regulatory realm, potentially gaining the trust of a wider audience. Also, investing in a spot bitcoin ETF can attract traditional investors, as such a fund operates within its familiar exchange-traded structure.
There are two variations of cryptocurrency ETFs: spot and futures.
As the cryptocurrency market develops, so does the interest in ETFs. Each type is geared towards different investment strategies and has its own characteristics.
So far, the U.S. Securities and Exchange Commission (SEC) has given the go-ahead to create only a few types of bitcoin ETFs, particularly those based on futures contracts. Futures-based ETFs do not provide direct cryptocurrency ownership or even involve delivery (i.e. direct purchase in the market).
A bitcoin futures ETFbis an exchange-traded fund that does not directly own bitcoin. Instead, it invests in bitcoin futures contracts, which are agreements to buy or sell bitcoin at a specific price.
By buying shares of bitcoin futures bitcoin-ETFs, the investor is making a kind of bet on the future price of bitcoin. Because of this, investors can speculate on future changes in the price of bitcoin without owning the cryptocurrency itself, even indirectly through the fund.
The disadvantages or risks of bitcoin futures ETFs include the lack of a strong link to the price. The functioning of such ETFs is quite complex, as they operate with a link to the futures market, which is no less complex in itself.
The alternative to futures is the spot market, where the assets are bought and sold directly in real time.
A spot bitcoin ETF is an exchange-traded fund that directly holds bitcoin as the underlying asset.
The peculiarity of such ETFs is that the formation of the fund involves the delivery of bitcoin as the underlying asset, i.e. its direct purchase on the market.
Accordingly, many investors understandably expect a multiple growth of the bitcoin rate after approving any such fund because it will have to buy out a huge stock of coins from the free market, creating an artificial deficit and causing a price rally.
About 3,000 different ETFs are already in the U.S., with assets valued at nearly $10 trillion.
Some well-known financial organizations, including BlackRock, Invesco, Ark Investand Fidelity, have already submitted applications to create a spot bitcoin ETF. If the applications are approved, investors will have access to more bitcoin-ETFs.
According to experts' conservative estimates, if fund issuing companies invest just 1% of their assets in cryptocurrency ETFs, the price of bitcoin could soar to $50 — 70k.
Which doesn't seem so unbelievable. After all, even against the simple news that regulators had allegedly approved BlackRock's ETF, bitcoin jumped in price by more than 10% overnight. However, the news turned out fake, and the price quickly returned to its previous level.
But still, according to analysts at Bloomberg Intelligence, the probability that the SEC will approve the ETF in early 2024 is estimated at 90%.
JPMorgan analysts noted that the SEC simply has no other option but to allow spot bitcoin ETFs on the market because otherwise, they would have to revoke permission for futures ETFs, which would be almost a disaster for the agency.
