What are the Bitcoin spot ETFs?

At the beginning of 2023, several major asset managers and investment funds applied for a spot Bitcoin ETF. Well-known names among the applicants are BlackRock, VanEck, and Ark Invest. Since then, the entire market has 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 lead to more institutional adoption of Bitcoin and a rising price development. On January 10, 2024, the redeeming word came and 11 Bitcoin spot ETFs were accepted! In this article, we will tell you how this came about and what its significance is.

The role of the SEC

Investing in Exchange-Traded Funds, or ETFs, is a popular structure worldwide. But before an ETF can be launched, permission is needed from the financial regulator. In the United States, permission is required from the Securities and Exchange Commission (SEC). From the first application, it was encouraging that BlackRock had only once received a rejection from the SEC. And these were almost six hundred approved applications. The other applicants were also reputable parties with impressive statistics, making the chances of approval high.

A starting point for increases?

The SEC regularly moved the deadline for their decision and requested additional information. The first hard deadline applied to Ark Invest, on January 10, 2024. In addition, there were a large number of deadlines set in March 2024: about a month before the Bitcoin halving.

In the end, it was decided to give all applications with a March deadline a decision as early as January 10. Probably so as not to give one party a first mover advantage.

The most famous Bitcoin spot ETFs currently are:

1. Blackrock’s iShares Bitcoin Trust (NASDAQ:IBIT)
2. ARK 21Shares Bitcoin ETF (NYSE:ARKB)
3. VanEck Bitcoin Trust (NYSE:HODL)
4. Bitwise Bitcoin ETF (NYSE:BITB)
5. Valkyrie Bitcoin Fund (NASDAQ:BRRR)
6. Franklin Bitcoin ETF (NYSE:EZBC)
7. Fidelity Wise Origin Bitcoin Trust (NYSE:FBTC)
8. Grayscale Bitcoin Trust ETF (NYSE:GBTC)
9. Hashdex Bitcoin ETF (NYSEARCA:DEFI)
10. Invesco Galaxy Bitcoin ETF (NYSE:BTCO)
11. WisdomTree Bitcoin Fund (NYSE:BTCW)

Many investors saw the approval as a possible starting point for a new bull run, especially in combination with the halving that quickly followed. Each investor has a different prediction for what this could mean for the Bitcoin price. Ultimately, it is important for investors to remember that no one has a crystal ball. The launch of spot ETFs and a halving were right after each other, a unique event that the entire crypto market relished.

Futures and spot ETFs

There were already several Bitcoin ETF-like solutions available worldwide before these spot ETFs came out. However, there are two types of Bitcoin ETFs:

• Bitcoin futures ETFs: these trade in futures contracts and are not backed by Bitcoin.
• Bitcoin spot ETFs: which follow the price of the spot market and are backed by real Bitcoins.

With a spot ETF, BTC is actually bought to follow this spot market price. This works as follows: the issuer of the ETF buys a certain amount of BTC and stores it securely, hopefully 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. The cost price of 1 ETFs is not equal to 1 bitcoin, they often divide these into smaller pieces.

Both types are traded on various stock exchanges. To buy ETFs, investors usually use online brokers such as their major bank or platforms such as online broker DeGiro or IBKR. However, the approved American Bitcoin spot ETFs are not available in Europe for private investors because these ETFs do not comply with our regulations. So only professional investors can buy the American ETFs from parties like Saxo. At the moment, it is not possible in the Netherlands for private individuals to buy one of the latest Bitcoin spot ETFs.

Availability of Bitcoin ETFs

The Bitcoin spot ETFs that all investors were waiting for in 2023 are specifically American ETFs. There were already several Bitcoin (or other crypto) spot ETFs available worldwide, such as in Germany, Sweden, Brazil, and Canada. But this was all on a much smaller scale and often without supervision. That does not, however, make one better than the other or exists as the best crypto ETF, and anyone can choose which exchange they buy a Bitcoin ETF.

Most ETFs are only tradable during the opening hours of the exchange they are listed on. So it is not possible to cash in quickly during a peak in the price on Christmas morning. The availability is therefore much lower than trading in Bitcoin itself: the crypto market is open 24/7, every day of the year. There are also costs associated with holding the Bitcoin ETF, just like trading it.

Consequences of Bitcoin ETFs

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

The expectation has always been that investors, private or business, may shift a bit in the way they invest in crypto. Institutional parties may now be more inclined to buy a Bitcoin spot ETF, which is backed by Bitcoin, than to invest in funds or companies such as MicroStrategy (the public company with the largest Bitcoin position).

However, it is not expected that current Bitcoin owners will massively close their positions and start buying ETFs. And besides possible shifts, the feeling prevails that there will be an influx of more capital, mainly from institutional investors.

There are also possibilities in America to purchase the Bitcoin ETF as part of the pension, which seems to be a popular option. It is often the case that the employer invests (part of) the investment of its employees. This also often gives the employees a tax advantage.

First results of the new ETFs

The daily inflow of capital through the American ETFs reached the milestone of $1 billion per day for the first time on March 12, 2024.

Two ETFs have a relatively small outflow on some days, Grayscale has a very high outflow almost every day, but the other ETFs have a much larger inflow. Blackrock's IBIT is the leader in this.

In March 2024, several new all-time highs (ATHs) were recorded for Bitcoin. Although causality is difficult to prove, it strongly appears that the approval of the ETFs and their immense daily inflow has a positive effect on the price.