Why a US bitcoin ETF is a game l changer for crypto

The U.S. Securities and Exchange Commission (SEC) on Wednesday approved exchange-traded funds (ETFs) that track the value of bitcoin in a game-changer for the cryptocurrency industry that has struggled with such products for more than a decade. Trying to launch


Why a US bitcoin ETF is a game l changer for crypto

A number of asset managers have applied for bitcoin ETFs since 2013, but the SEC rejected them on the grounds that they would be prone to market manipulation. In August, however, a court found that the SEC was wrong to reject Grayscale Investments' bitcoin ETF application, forcing the agency to reconsider its position.


On Wednesday, the SEC approved applications from ARK Investments, BlackRock ( BLK.N ) and Fidelity. Here's how the products work and why approval is considered a big deal:

How will ETFS work?

It will be listed on Nasdaq, NYSE, and CBOE. Their assets will consist of physical bitcoin purchased from crypto exchanges and held by custodians such as Coinbase Global ( COIN.O ).


The product tracks the Bitcoin benchmark. Some track the index provided by CF Benchmarks, a subsidiary of cryptocurrency exchange Kraken, which aggregates trading data from several Bitcoin-USD markets operated by major cryptocurrency exchanges.


To address SEC manipulation concerns, Nasdaq and CBOE have created a market oversight mechanism with Coinbase, the largest US cryptocurrency exchange.

Issuers plan to charge fees ranging from 0.20% to 0.8%, which is well below the broader ETF market average.


Is buying bitcoins outright different?

Rather, a spot bitcoin ETF allows investors to gain exposure to the price of bitcoin without the complications and risks of owning bitcoin directly. These include setting up accounts with crypto wallets and crypto exchanges, some of which have poor cybersecurity records and are prone to hacks.


The industry has also experienced bankruptcies and scandals, including the implementation of the crypto exchange FTX, whose founder Sam Bankman-Fried was found guilty of fraud.

Other exchanges have been accused of violating US securities laws, while Binance, the world's largest crypto exchange, recently pleaded guilty to breaking US anti-money laundering laws. All this keeps many investors wary.


In contrast, ETFs are listed on a strictly regulated stock exchange and are therefore accessible through retail investors' existing brokerage accounts, which are also monitored.


The ETF structure also boosts Bitcoin's accessibility to institutional investors, some of whom have been blocked from investing directly in alternative assets.


Why is it different from existing Bitcoin futures ETFS?

The SEC approved a bitcoin futures ETF in 2021, which tracks contracts to buy or sell bitcoin at a predetermined price. But those products don't precisely track price movements, and the cost of rolling on futures contracts can eat into profits, making them less desirable for many investors.


Aren't these spot bitcoin ETFs in countries like Canada and Europe?

Yes. But the United States is the world's largest capital market, home to the world's largest asset managers and institutional investors.


How much will a Bitcoin ETF grow?

It is unclear. The ProShares Bitcoin Strategy ETF (BITO.P), the first bitcoin futures ETF approved by the SEC in 2021, saw nearly $1 billion worth of shares trade on its first day, and some experts believe that the spot bitcoin ETF will be tripled. So much for his first day. That figure could reach $55 billion in five years, some experts estimate.


Bitcoin is up 70 percent since Grayscale's decision, with analysts saying it's unclear how much more it will rise, with some saying interest rates will play a big role.


But it's not just about the money.

For the crypto industry, the Spot Bitcoin ETF is a big win, boosting the legitimacy of the cryptocurrency industry and pushing Bitcoin further into the mainstream.


It also comes amid a wider tug-of-war between the crypto industry and the SEC, which has been cracking down on the sector.

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