Bitcoin spot ETFs

January 9, 2024
Updated: January 11, 2024
4 min read
etf

In early 2023, several large asset managers and investment funds applied for a spot Bitcoin ETF. Well-known names among the applicants include BlackRock, VanEck and Ark Invest. Since then, the entire market had been anxiously waiting to see which ETFs will be approved, and when. All with the expectation that the launch of a spot ETF in the United States will bring more institutional adoption of Bitcoin and a higher BTC price. On January 10, 2024, the SEC finally approved 11 Bitcoin spot ETFs. In this article, we will explain its significance.

The role of the SEC

Investing in ETFs (exchange-traded funds) is popular all around the world. But before an ETF can be launched in the United States, it requires approval from the Securities and Exchange Commission (SEC). What had been hopeful from the first application is that BlackRock, one of the applicants, has only received one rejection from the SEC. And that's against nearly six hundred approved applications. The other applicants, too, are reputable parties with impressive statistics, which made approval more likely.

A starting point for price increases?

The SEC has regularly pushed back the deadline for their decision and has requested additional information at many times. The first hard deadline applied to Ark Invest, on Jan. 10, 2024. In addition, quite a few deadlines had been set in March 2024: about a month before the Bitcoin halving. Eventually, the SEC opted to approve all parties at once, even those whose deadline was set in March. Most likely to prevent a significant first-mover advantage for Ark Invest.

Many investors see the approval as a possible starting point for a new bull run. Each investor has a different prediction for what this could mean for the actual Bitcoin price. Ultimately, as investors, it is important to remember that no one has a crystal ball. But the launch of spot ETFs and a halving right after each other, of course, is a unique occurrence that may set things into motion.

Futures and spot ETFs

Some Bitcoin ETFs were already available before January 2024. However, there are two types of Bitcoin ETFs:

  • Bitcoin futures ETFs: these trade in futures contracts and are not backed by BTC
  • Bitcoin spot ETFs: which track the spot market price and are backed by real Bitcoins. In the background, actual BTC is bought to follow this spot market price. It works like this: the ETF issuer buys some BTC and stores it securely, probably with multiple layers of security. They then issue shares based on the amount of BTC they have. The price of all these shares is then influenced by the current market price of BTC.

Both types are tradable on traditional stock exchanges. To buy ETFs, investors typically use online brokers such as their major bank or platforms such as DeGiro. Because the American Bitcoin spot ETFs do not adhere to European regulations, they are not available for consumers. Professional traders, however, can buy them at platforms like Saxo.

Availability of Bitcoin ETFs

The Bitcoin spot ETFs that all investors were waiting for in 2023 are specifically U.S. ETFs. Several Bitcoin (or other crypto) spot ETFs were already available in other countries, such as Germany, Sweden, Brazil, and Canada. But these are all on a much smaller scale. However, that doesn't make one better than the other, and someone could already buy a Bitcoin ETF there.

Most ETFs are only tradable during the opening hours of the exchange on which they are listed. Quickly cashing out profits during a price spike on Christmas morning is therefore not possible. The availability is thus much lower than trading Bitcoin itself: the crypto market is open 24/7, every day of the year.

What will Bitcoin ETFs bring?

Today, there are all kinds of ways to have exposure to the crypto market as an investment. It is possible to buy crypto yourself, invest in crypto-related companies, invest in crypto funds, and buy crypto ETFs.

It is expected that private or corporate investors may shift somewhat in how they invest in crypto. Institutional parties may henceforth be more inclined to buy a Bitcoin spot ETF, which is backed by real BTC, rather than invest in funds or companies such as MicroStrategy (the company with the largest Bitcoin position).

However, it is not expected that current Bitcoin owners will close their positions en masse and buy ETFs instead. Besides possible shifts, the main feeling is that there will be an influx of more capital, mainly from institutional investors.

The information provided in our articles is intended solely for general informational purposes and does not constitute (financial) advice.

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