Original - Odaily
Author - jk
Today, the cryptocurrency space took a historic step: the U.S. Securities and Exchange Commission (SEC) announced it has officially approved the first Bitcoin spot exchange-traded fund (ETF).
Previously, since October last year, “Cointelegraphz published erroneous news on the X platform that SEC passed ETF” (see A piece of fake news, a phantom of a bull market that blew up over 100 million US dollars) to In the early morning of January 10, the SEC released the news of the adoption of ETF on the X platform (see ETF approval incident: Hackers stealing accounts, manipulating the market, or was the news released in advance?》), this good news has been released in advance many times, which not only caused the market to fluctuate violently, causing large-amount contract liquidation, but also allowed sell the news to fully price in, and then cast a layer of wolf on the event itself. Coming farce color.
Now, on January 10, local time in the United States, VanEck confirmed that all 11 applicants for Bitcoin spot ETFs have been approved, including Grayscale Investments that need to convert GBTC into ETFs. These are expected to begin trading as early as Thursday, U.S. time.
Once the news was released, the overall performance of the Bitcoin market was still stable, and no shocks occurred. As of press time, according to OKX market data, Bitcoin is currently trading at $45,772, a 24-hour increase of 0.85%. The obvious contrast is that ETH is currently trading at $2,530, with a 24-hour increase of 10.73%, which may be due to the markets positive response to the Ethereum ETF.
This decision is seen as a major affirmation of cryptocurrency by traditional regulators and heralds the growing status of Bitcoin and other digital currencies in mainstream financial markets. The approval of the ETF not only marks policymakers’ recognition of the potential of cryptocurrency as an investment tool, but also provides a new and convenient channel for the broader investment community to participate in Bitcoin investment.
What is a Spot Bitcoin ETF (Exchange-Traded Fund)?
Before we learn about spot Bitcoin ETFs, let’s first clarify what an ETF is.
Imagine you need to go to the supermarket to buy something. You can choose apples, bananas, oranges and other fruits individually, or you can just buy a pre-mixed fruit basket, saving you the trouble of selecting. In the world of investing, ETFs are like this mixed fruit basket.
An ETF will contain many different stocks, bonds, or other assets.When you buy an ETF, its like you buy everything in the basket at once. The advantage of this is that you can invest in many different assets at once, spreading the risk, rather than investing all your money in one fruit (i.e. one stock or asset) in the basket.
Second, ETFs can be bought and sold on the stock market like regular stocks, meaning investors can buy and sell them easily. For example, the well-known SPDR SP 500 ETF Trust (SPY) tracks the SP 500 Index, which includes the 500 largest publicly traded companies in the United States. Investing in this ETF is like investing in the stocks of these top companies at once, including giants like Apple and Amazon, effectively diversifying investment risks.
The spot Bitcoin ETF is like a special investment basket that contains real Bitcoin, not Bitcoin derivatives or stocks of related companies. This basket can be bought and sold on the stock market like regular shares.
Imagine that you want to invest in Bitcoin, but you don’t want to buy Bitcoin directly, worry about security issues (such as theft) or find the operation complicated. A spot Bitcoin ETF looks like an alternative. You can buy shares of this ETF on the stock market as if you indirectly own the Bitcoins inside. In this way, the price changes of Bitcoin will affect the price of this ETF, and you can participate in the Bitcoin market by buying and selling ETFs without directly buying and selling Bitcoin itself.
So, a spot Bitcoin ETF is a vehicle that makes it easier and safer for ordinary investors to participate in Bitcoin investments without having to directly participate in the cryptocurrency market.
What are the advantages of a Bitcoin ETF? Why is it so anticipated?
Speaking of this, you may ask a question: Since there is only one asset in the spot Bitcoin ETF, why do I need to buy a Bitcoin ETF instead of directly buying Bitcoin spot? Here are a few reasons:
Security Question:straightDirectly purchasing and holding Bitcoin involves considerable security risks, such as the possibility of being hacked, losing wallet private keys, exchange risks, or encountering storage problems. These risks are considerable for investors who are unfamiliar with digital currencies, and there are numerous examples of early Bitcoin investors forgetting their wallet private keys or being unable to find cold wallet storage.In contrast, Bitcoin ETFs are managed by a team of professionals who are responsible for ensuring the safety of the assets. Investors don’t need to worry about private key management or Bitcoin storage, as these are taken care of by the ETF’s administrator.
Operational issues:Buying Bitcoin directly usually requires opening an account at a cryptocurrency exchange, understanding the use of a digital wallet, and familiarity with the exchanges operating procedures and on-chain transfer processes. These steps may be complicated and time-consuming for some investors, but a Bitcoin ETF can be purchased through a regular stock trading account using the same process as buying and selling regular stocks.This facilitates investors who are already familiar with the stock market but less familiar with the cryptocurrency market.
Credit endorsement: Odaily mentioned in a previous article that direct investment in digital currencies does not sound like a safe choice for investment institutions with high capital amounts pursuing safety, especially after several thunderstorms last year. after the incident.From a credibility perspective, We invest in a very safe digital currency is obviously more convincing to asset management LPs than We invest in a financial investment ETF provided by BlackRock. This is why ETFs will be more attractive to institutional investors than Bitcoin itself.At the same time, Bitcoin ETFs are products traded on regulated financial markets and need to comply with relevant regulations and standards. This provides investors with a level of confidence and security.
In fact, the analogy to a spot Bitcoin ETF is a physical gold ETF: the concept was first proposed in 2003, and the first successful gold ETF was launched in 2004. This ETF is SPDR Gold Shares (GLD), which is listed on the New York Stock Exchange. It provides investors with a new, more convenient way to invest in gold without the need to purchase and store physical gold.Each ETF share represents a certain percentage of physical gold. When investors buy and sell shares of these ETFs, they are actually buying and selling the gold that corresponds to those shares. This makes investing in gold as easy as trading regular stocks while avoiding the security and storage issues associated with buying and selling physical gold.
At press time, the ETF’s 65-day average daily trading volume was $8.25 million.
Impact on market parties
Impact on Bitcoin
The biggest impact of spot ETF approval on Bitcoin is that it has gained a more formal status as a financial investment asset recognized by regulatory agencies. This not only enhances the legitimacy of Bitcoin as an investment tool, but may also increase the acceptance of Bitcoin by the public and traditional financial institutions.
From a trading perspective, the launch of a Bitcoin spot ETF will significantly increase Bitcoin’s trading volume, liquidity and stability as it attracts investment groups including traditional investors and institutional investors. It is expected to attract up to $3 billion in investment within the first few days of the deal, Reuters reported. Increased participation not only expands Bitcoin’s investor base, it also has the potential to make Bitcoin’s price more stable. In the long term, as more money flows into the Bitcoin market, this may have a positive impact on the price of Bitcoin, although there may be some volatility in the short term. In addition, the success of the Bitcoin spot ETF may also promote the development of other cryptocurrency products, such as ETFs or related derivatives involving other cryptocurrencies, further expanding the product depth of the entire cryptocurrency market.
Of course, there are other voices in the market; BitMEX founder Arthur Hayes believes that the adoption of ETFs may eventually lead to the disappearance of Bitcoin. The reason is that if everyone buys Bitcoin ETFs instead of spot, there will be no Bitcoin between the two entities. transactions, miners will be unable to pay the necessary energy fees, causing the network to collapse.He also mentioned that if only large asset management companies hold but do not use Bitcoin, Bitcoin will no longer circulate on the blockchain and have no practical use, which will lead to the disappearance of Bitcoin. He believes that in order to protect Bitcoin from centralized control, investors should buy and store Bitcoin directly rather than investing in derivatives such as Bitcoin ETFs.
Impact on investors
The emergence of Bitcoin spot ETFs provides investors with a more convenient way to invest in Bitcoin, which is especially important for investors who are already familiar with the traditional stock market. Buying a Bitcoin spot ETF with one-click transfer through the stock market or even a mobile app is much simpler than buying Bitcoin directly on a cryptocurrency exchange. Investors do not need to use a new exchange, create a new trading account, or learn how to use a digital wallet, making it easy for even ordinary investors who don’t know much about cryptocurrencies to participate.
The launch of a Bitcoin spot ETF will also help increase public awareness and education about Bitcoin and the cryptocurrency space as a whole. As Bitcoin becomes available through traditional, regulated financial markets, more people will begin to understand and explore this space. This increased exposure and awareness will not only benefit the popularity and acceptance of Bitcoin, but also the overall maturation and growth of the cryptocurrency market.
Impact on issuing institutions
When a financial institution successfully issues a Bitcoin spot ETF, it will first gain significant market exposure and recognition. This attention not only enhances the institutions visibility in the financial community, but also signals its leadership in the emerging digital currency field. . By offering this new type of investment vehicle, issuers can demonstrate their ability to adapt to market trends and needs, thereby enhancing their brand image and market competitiveness. At the same time, the launch of Bitcoin ETFs allows issuers to attract a wider investor base, including individual and institutional investors. This often attracts significant new capital investment, especially from investors who would otherwise be hesitant due to security or technical barriers. This capital inflow not only increases the size of assets managed by issuers, but also enhances their status in the asset management industry.
previous process
Grayscale first filed for a Bitcoin ETF in 2016 and spent much of 2017 in conversations with the U.S. Securities and Exchange Commission (SEC). The company ultimately withdrew its application, arguing that the regulatory environment for digital assets had not evolved to the point where such a product could be successfully launched.
Asset manager Bitwise applied for a physically-backed Bitcoin ETF in 2019 but withdrew its request in January 2020 due to SEC concerns.
In a November 2021 decision regarding a scheme fund proposed by VanEck, the SEC said that the Cboe BZX exchange “has not demonstrated that alternative methods adequately protect against fraudulent and manipulative acts and practices,” Blockworks reported. The regulator added, The exchange on which the proposed ETF would trade does not have a comprehensive surveillance sharing agreement with a regulated market of significant size related to Bitcoin. The ruling comes a month after the SEC allowed ETFs investing in Bitcoin futures contracts to begin trading in October 2021.
Beginning in mid-2023, asset management giants began a new wave of applications for spot Bitcoin ETFs.On April 25, 2023, Cboe BZX Exchange filed with the U.S. SEC for listing and trading shares of the ARK 21 Shares Bitcoin ETF, and submitted corresponding rule changes. On May 15, the ARK 21 Shares Bitcoin ETF, which underwent rule changes, officially published its application in the U.S. Federal Register and solicited comments, marking the official launch of the ETF approval process.In June, several asset management giants such as BlackRock, Fidelity, Bitwise, and Invesco announced their applications for Bitcoin spot ETFs.The SEC subsequently delayed the announcement of the resolution.
In addition, in 2022, the SEC rejected Grayscale’s proposal to convert GBTC into an ETF, so Grayscale chose to appeal. In August 2023, Grayscale won the lawsuit, requiring the SEC to re-examine Grayscales proposal, and the SEC chose not to appeal. The judge in the case ruled that the SEC’s decision to block the conversion but approve a Bitcoin futures ETF was “arbitrary and capricious.” While this ruling does not force the SEC to approve GBTC’s conversion to an ETF, the regulator would have to reject such action on different grounds. As a result, Grayscale continues to revise its application in preparation for a potential conversion.
The U.S. SEC has not approved a Bitcoin spot ETF. This decision limits investors’ diversified investment options and poses a challenge to Bitcoin’s recognition as a legal and stable investment tool. However, it also reminds market participants of the cryptocurrency market. Stay alert to the current situation and potential risks. This decision will temporarily delay the recognition process of other cryptocurrency products and services, and also reflects the attitude of regulatory agencies in the field of cryptocurrency. Odaily reminds readers to take precautions against risks and wait patiently for future reactions from all parties.
