Want to get a free on-chain certificate that proves your Bitcoin knowledge? Take our free course, Bitcoin Halving 101: What It Means for Miners and Investors.
Many curious people still consider buying Bitcoin from a crypto exchange a scary and obscure process. Technical aspects of holding bitcoins – such as crypto wallets, Bitcoin addresses and private keys—are confusing to newcomers, and scare some investors.
All this has strengthened the appeal of the Bitcoin ETF or Exchange Traded Fund. In the US, major financial institutions such as BlackRock, Fidelity and Invesco have filed with the US Securities and Exchange Commission (SEC) to launch ETFs. In the year As of January 2024, the Securities and Exchange Commission (SEC) has yet to approve a Bitcoin ETF position.
On the other hand, Greyscale's two-year battle to launch a Bitcoin ETF may finally be turning the corner. In the year In August 2023, the United States Court of Appeals for the DC Circuit sided with Grayscale against the US Securities and Exchange Commission (SEC) in its efforts to launch a crypto firm Bitcoin ETF; In October 2023, the regulator was ordered to review Greyscale's application.
In the year In late 2023, SEC Chairman Gary Gensler said amid meetings between the SEC and more than a dozen hopefuls, the regulator is “taking a fresh look” at Bitcoin ETF applications. Analysts at JP Morgan and Bloomberg have pointed to a strong possibility that one or more Bitcoin ETFs will be approved by January 2024.
Other countries quickly followed suit, with Bitcoin ETFs launching in Canada, Brazil and Europe.
What is an ETF?
💸 An ETF is an investment vehicle that is traded like a stock but tracks the performance of an underlying asset or index rather than a company. 🛢️ ETFs are a way for investors to gain exposure to the value of an asset such as gold or oil. 📈 ETFs are traded on a traditional stock exchange, so their value should go up when the asset goes up in value and fall when it goes down.
Did you know this?
The first ETF was launched in 1993, and became popular as a way for retail investors to invest in a basket of assets at once. If you want to invest in the 500 largest companies in the US all at once, you can buy shares in the S&P 500 ETF.
The Bitcoin ETF works the same way as any other ETF. Investors buy shares in an ETF through any brokerage they buy stocks from, and can trade them the same way they trade shares in Apple or Tesla.
Bitcoin ETFs track the current The price of BitcoinAnd it should act in lockstep with Bitcoin's price volatility.
Why a Bitcoin ETF?
So why don't investors just buy Bitcoin?
For most regular retail investors, Bitcoin and cryptocurrencies in general still seem risky.
In addition to having unclear regulations surrounding them, owning Bitcoins is a Bitcoin wallet And trustworthy crypto exchanges, which are still uncharted territory for those unfamiliar with the space and require a certain level of self-education.
Holding Bitcoin puts the security burden squarely on you, making you responsible for keeping your own private keys secure (unless you want to trust them with an exchange). This could mean buying a. Hardware bag To protect purchased bitcoins or store private keys in a secure manner. You also need to work out how to file taxes on the sale of Bitcoin that resulted in a capital gain.
With a Bitcoin ETF, investors don't need to worry about private keys, storage or security. They own shares in an ETF, just like a stock, and can gain exposure to the cryptocurrency market without having to buy and hold crypto.
And to put it bluntly, that's a very attractive proposition to many regular people—as well as sophisticated institutional investors.
That's why many hedge funds and other investment firms have filed applications with the US Securities and Exchange Commission (SEC) for Bitcoin ETFs. Gemini founders Cameron and Tyler Winklevoss came out of the gate in 2013 with an application for the Winklevoss Bitcoin Trust. In 2018, the US Patent and Trademark Office awarded the Winklevoss brothers a patent for “interchangeable products”. Others soon followed, but in the decade since the Winklevoss twins' trial, the SEC has yet to approve any application for a spot Bitcoin ETF.
How does a Bitcoin ETF work?
A Bitcoin ETF is managed by an organization that buys and holds the actual Bitcoin. The price is tied to the Bitcoin held in the fund. The firm lists the ETF on a traditional stock exchange, and you, the investor, trade the ETF just like any other stock. Bitcoin ETFs offer new trading opportunities, including short selling, where investors can compete with Bitcoin.
But there are also some key differences between the Bitcoin ETF and other ETFs.
First, some ETFs, such as those that track the S&P 500, represent equity shares, so you get a cut of the dividends that any company in the ETF pays to shareholders. When Tesla pays the dividend and you have shares in the ETF including Tesla, you get a small (small) dividend. Bitcoin is decentralized, so that may not be the case with a Bitcoin ETF.
Second, like other ETFs, you must pay fees to the company that offers the ETF. But with a Bitcoin ETF, a portion of your fee goes toward paying the custodial and management fees for buying and storing Bitcoin.
A brief history of Bitcoin ETF development
July 2013: The Winklevoss Bitcoin Trust submits its first Bitcoin ETF proposal. June 2018: SEC rejects Winklevoss' second Bitcoin ETF proposal. October 2019: SEC Rejects Bitwise's Bitcoin ETF Proposal February 2020: Wilshire Phoenix becomes the latest project to have its Bitcoin ETF rejected by the SEC. September 2020: The world's first Bitcoin ETF is listed on the Bermuda Stock Exchange. December 2020: VanEyck submits a proposal for a Bitcoin ETF after pulling the previous proposal long before formal rejection. In the year February 2021: Canada's first bitcoin ETF, the Target Bitcoin ETF (BTCC), launches. Two more will be approved in the same month: Evolve Bitcoin ETF (EBIT) and CI Galaxy Bitcoin ETF (BTCX). October 2021: The first US-listed Bitcoin-linked ETF, roShares Bitcoin Strategy ETF (BITO), is launched. It does not hold Bitcoin itself on the balance sheet, but tracks the value of Bitcoin in related assets. June 2023: SEC approves 2x Bitcoin Strategy ETF (BITX) with variable shares and first leveraged Bitcoin futures ETF. August 2023: London-based Jacobi Asset Management launches Europe's first Bitcoin ETF. August 2023: US judge orders SEC to convert Greyscale Bitcoin Trust by rejecting Greyscale's application (GBTC) review the Bitcoin ETF in one place. October 2023: Following the rejection of the SEC's appeal, the US Court of Appeals orders the SEC to review Greyscale's application. December 2023: SEC Chairman Gary Gensler says the regulator is “taking a fresh look” at spot Bitcoin ETF applications and reviewing “between eight and a dozen submissions.”
What's so special about Bitcoin ETFs?
A Bitcoin ETF in the US is expected to bring new mainstream credibility and acceptance to Bitcoin investing. In the year In 2020 and 2021, large publicly traded companies including Square and Tesla bought Bitcoin for balance sheets, spurring new adoption — but the cryptocurrency is still seen by many conservative investors as a risky bet or even a gimmick.
The approval of the Spot Bitcoin ETF by the SEC means that institutional investors can easily speculate on the price of Bitcoin. It practically brings Bitcoin to Wall Street, where a Bitcoin ETF can be traded like Tesla stock, bonds, gold, oil or any other traditional asset.
And it will probably be a big boost for the price of Bitcoin.
Did you know this?
Cannabis ETFs have become popular for many of the same reasons that Bitcoin ETFs have. Like crypto, the marijuana industry is still viewed as risky and uncertain by traditional investors looking for a chance to survive.
Stay on top of crypto news, get daily updates in your inbox.
