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Will BlackRock's Bitcoin ETF Proposal Fuel the Next Bull Market?
Beginner
2023-11-07 | 5m
TL;DR
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Spot Bitcoin ETFs refer to exchange-traded funds that significantly lower the entry barrier for traditional investors to invest in Bitcoin, thus opening the gateway for traditional capital to enter the crypto world.
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Spot Bitcoin ETFs are typically managed by a company that purchases and holds real BTC, with their price pegged to the BTC held in the fund.
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According to statistics, as of 2021, 19 institutions have applied for spot Bitcoin ETFs. However, the U.S. Securities and Exchange Commission (SEC) has not yet approved any of them for listing.
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The approval of spot Bitcoin ETFs is highly significant for the crypto m arket. It can enable more financial institutions and individual investors to access Bitcoin investments more conveniently, enhancing liquidity in the crypto market and reducing investment risks. Additionally, it will also accelerate the compliance process for Bitcoin and propel the crypto industry toward a more promising future.
On June 16, 2023, the global asset management giant BlackRock's subsidiary, iShares, submitted an application for a spot Bitcoin ETF to the U.S. Securities and Exchange Commission (SEC). To be named the iShares Bitcoin Trust, the fund's assets will primarily consist of Bitcoin held by the trust's custodian. Fueled by this positive news, the price of Bitcoin surged past US$30,000, setting a new high for 2023.
So, what is a spot Bitcoin ETF? How does it work? Why did it fuel the increase in the price of Bitcoin? This article will provide you with a detailed e xplanation of spot Bitcoin ETFs and their importance for the crypto industry.
What is a spot Bitcoin ETF?
Before we delve into spot Bitcoin ETFs, let's first take a look at what an ETF is. An ETF, also known as Exchange Traded Fund, is a type of securities product that can track the prices of underlying assets such as stocks, bonds, and commodities. It is somewhat similar to what we know as a fund. However, unlike funds, ETFs can be freely purchased or sold on trading platforms.
Spot Bitcoin ETF, on the other hand, is a new type of ETF designed to track the spot Bitcoin price. Its price and volatility are closely linked to the price and volatility of the Bitcoin spot market. This means that when Bitcoin's price goes up, so does the Bitcoin ETF price. Conversely, if Bitcoin's price goes down, the ETF price also drops.
Unlike traditional Bitcoin trading methods, spot Bitcoin ETFs allow investors to invest in and trade Bitcoin through their securities accounts without the need to directly purchase and hold Bitcoin. This significantly lowers the barriers for institutions and individual investors to invest in Bitcoin. Additionally, spot Bitcoin ETFs can provide increased liquidity and transparency, as well as more accessible trading options.
What Benefits Can Spot Bitcoin ETFs Bring to the Market?
Lower Bitcoin investment barriers for both institutional and individual investors. Compared to traditional financial markets, investing in Bitcoin can be complex, requiring investors to purchase, store, and hold Bitcoin themselves. This presents certain barriers and risks for some institutional and individual investors from traditional financial markets. Spot Bitcoin ETFs, on the other hand, can be traded on exchanges, making it easier for investors to establish Bitcoin positions without the need for additional learning costs. They can participate in Bitcoin investment just like buying stocks, without concerns about private keys, storage, or security issues.
Increased liquidity and stability in the cryptocurrency market. The listing and trading of spot Bitcoin ETFs can enhance Bitcoin's recognition in traditional financial markets, further driving its adoption and popularity. As a result, it can attract the participation of more traditional investors, thereby increasing market liquidity. Additionally, ETFs also enhance transparency and stability in the crypto market, reducing the risks associated with crypto investments, and contributing to the development of the market.
Accelerated compliance in the crypto market. The successful approval of spot Bitcoin ETF applications signifies that the crypto market is gradually coming under regulatory oversight, with its compliance being officially recognized. This represents a positive impetus for the recognition of Bitcoin and other cryptocurrencies in the traditional financial markets.
How do Bitcoin ETFs Work?
Spot Bitcoin ETFs are typically managed by an asset management company, which acquires and holds real Bitcoin and tracks changes in the Bitcoin market price through exchange trading. As a result, the price of the ETF is pegged to the price of the Bitcoin held in the fund and reflects the fluctuations in the market. The company lists the ETF on traditional stock exchanges, and investors can trade the Bitcoin ETF just like they would with other stocks. It's important to note that different spot Bitcoin ETFs may employ various investment strategies and tools, leading to potential differences between them.
Overview of Spot Bitcoin ETF Applications Over the Years
Spot Bitcoin ETFs provide an avenue for both institutional and individual investors to invest in Bitcoin in a compliant manner. Unfortunately, as of 2021, 19 institutions have submitted applications for spot Bitcoin ETFs, but the U.S. Securities and Exchange Commission (SEC) has not approved any of them for listing.
Closing Thoughts
While the SEC has rejected several attempts by fund management companies to launch spot Bitcoin ETFs, multiple futures-based Bitcoin ETFs have received approval and are trading, indicating that U.S. regulatory authorities are gradually easing restrictions on cryptocurrency ETFs. While there are differences between futures-based ETFs and spot ETFs, this is undoubtedly a positive signal.
Recently, several major institutions are still actively attempting to apply for spot Bitcoin ETFs. In just one week, three companies, including asset management giant BlackRock, have submitted spot Bitcoin ETF applications to the SEC. Although the SEC has not yet approved them, this may indicate that spot Bitcoin ETFs are not far from becoming a reality. Whether this will accelerate the return of the next bull market remains unknown. We'll have to wait and see!
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Disclaimer: The opinions expressed in this article are for informational purposes only. This article does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. Qualified professionals should be consulted prior to making financial decisions.
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