Bitcoin (BTC) is the most well-known and largest cryptocurrency in the world. Despite having a larger market share than other digital assets, it wasn’t approved by regulatory bodies until recently, with the introduction of spot Bitcoin exchange-traded funds (ETFs).
The approval of spot Bitcoin ETFs makes crypto more accessible and brings good news for online gaming. Casinos using BTC could see more players, as faster payments and withdrawals make 777 fun games even more exciting to play.
In this article, we’ll explore what spot Bitcoin ETFs are and how they work. Keep reading until the end, as we’ll also discuss what investors can expect in the near future. Let’s get started!
Understanding Spot Bitcoin ETFs
Spot Bitcoin ETFs are financial instruments that expose investors to fluctuations in the price of BTC. It’s a regulated way to invest in the cryptocurrency through brokerage accounts.
Unlike traditional investment vehicles like gold, spot Bitcoin ETF is a new asset class disguised under the exchange-traded funds wrapper. It lets investors bypass the complex cryptosystem while enabling them to purchase and hold cryptocurrencies directly.
How Does Spot Bitcoin ETF Work?
Spot Bitcoin ETFs may sound confusing to novice traders, but they simply refer to exchange-traded products backed by BTC reserves. These cryptocurrencies are often held in secured digital vaults that are managed by registered custodians.
Here is a quick breakdown of how BTC ETFs work:
- The company behind the ETF product purchases Bitcoins from authorized exchanges and stores them in a digital wallet. It’s highly protected with several layers of security to reduce the risk of breaches and hacks.
- After purchasing the cryptocurrency, the ETF will issue shares against the amount of BTC it holds. Investors can buy them from traditional exchanges or stock markets.
- The spot Bitcoin ETF shares track the cryptocurrency’s market price, and through rebalancing, it matches the CME CF Bitcoin Reference Rate.
The SEC Has Finally Approved Spot Bitcoin ETFs for Trading
Spot Bitcoin ETFs haven’t piqued the interest of regulatory bodies in the past decade. In fact, in 2023, a company sought approval to provide these funds by sending the first application.
Although the regulatory bodies rejected the idea of Bitcoin ETFs, it paved the way for BTC ETFs based on future products in 2021. The primary reason for the rejection was the unregulated nature of the cryptocurrency, which would create unnecessary risk for investors.
It wasn’t until June 2023 that the momentum for spot Bitcoin ETFs started gaining traction. Blackrock filed an application for such products, soon followed by financial giants like Fidelity and Franklin Templeton.
During this time, there was some back-and-forth between the investment firms and the US Securities and Exchange Commission (SEC). However, a tweet from the SEC confirming the approval of spot Bitcoin ETFs caused BTC’s price to skyrocket. Later, it was found that the regulatory body’s account on the social media platform X was compromised.
Finally, the big news arrived on January 10, 2024, when the SEC announced that it would approve spot Bitcoin ETF products. This was a significant milestone, bridging the gap between traditional financial instruments and cryptocurrencies.
What’s the Difference Between Spot Bitcoin ETFs and Bitcoin Futures?
Now that you know what spot Bitcoin ETFs are, it’s easier to distinguish between this type of asset class and BTC futures. Here are a couple of differences between the two:
- Spot Bitcoin ETFs involve buying shares that are backed by real Bitcoins held by an authorized custodian. On the other hand, BTC futures is a derivative contract, which is an agreement to buy or sell the asset at a later date for a predetermined rate.
- Spot Bitcoin ETFs operate in a regulated environment. It’s monitored by the SEC, ensuring security and compliance. While BTC futures are also secure, there is a lot of risk involved in this type of investment strategy, introducing complexities and additional costs.
What Does the Approval of Spot Bitcoin ETFs Mean for Bitcoin?
The recent sign-off by the SEC is a regulatory seal of approval for the largest cryptocurrency. It is likely to reduce the fear of investing in such products among traditional investors, making it easier for them to purchase these financial instruments from reputable investment firms.
While people can now invest in the largest cryptocurrency through approved exchanges, Gary Gensler, the US Securities and Exchange Commission chairperson, advised caution, warning investors to consider the risks before investing in spot Bitcoin ETFs.
Until last year, retail investors could only buy BTC directly or from ETFs that trade in cryptocurrency futures. The decision by the SEC would allow access to the crypto asset without needing a digital crypto wallet. You can now hold the financial instrument in authorized brokerage accounts.
What should investors expect now? Analysts believe that a lot of money may flow into spot Bitcoin ETFs due to greater accessibility for Americans. In fact, many individuals have already started purchasing these products, causing the price of BTC to soar in recent months.
Interesting Numbers Following the Approval of Spot Bitcoin ETFs
Upon approval of spot Bitcoin ETFs, the trading volume continued to surge daily, with the value of transactions nearing $10 billion in March 2024. While that’s impressive, what’s even more exciting is that the BTC ETF flows outpaced the first net gold exchange-traded funds launched in 2005!
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How Many Spot Bitcoin ETFs Are Available?
Currently, the SEC has approved 11 different spot Bitcoin ETFs, some of which include the following:
- ARK 21Shares Bitcoin ETF (ARKB)
- Grayscale Bitcoin Trust (GBTC)
- iShares Bitcoin Trust (IBIT)
- WisdomTree Bitcoin Fund (BTCW)
What’s the Outlook on Spot Bitcoin ETFs?
Since it’s a new market, projecting its value can be far from challenging. However, with the recent investments in such products, analysts expect the industry to be worth over $100 million in the coming years.
Galaxy, a reputable financial services provider, estimates investments in spot Bitcoin ETFs to reach $39 billion within 36 months.
Final Thoughts
The outlook for spot BTC exchange-traded funds looks promising, with investment analysts predicting massive capital inflows in coming years. While the recent approval makes investing in these cryptocurrency products easier, it’s essential to do your research and understand the risks before investing your hard-earned money.
