How Spot Bitcoin ETFs Could Boost the Crypto Market

The US Securities and Exchange Commission (SEC) has finally approved a range of spot Bitcoin (BTC) exchange-traded fund (ETF) applications, after more than a decade of waiting. The decision is expected to have a significant impact on the crypto market, as it could attract more institutional and retail investors to the digital asset space.

What are spot Bitcoin ETFs?

Spot Bitcoin ETFs are financial products that track the price of Bitcoin in the spot market, meaning they hold actual bitcoins in custody and reflect their value. Unlike futures-based Bitcoin ETFs, which use contracts to bet on the future price of Bitcoin, spot Bitcoin ETFs do not involve any leverage or derivatives.

Spot Bitcoin ETFs have been long-awaited by many crypto enthusiasts, as they could provide a more convenient and cost-effective way to access the bitcoin market. They could also reduce the volatility and risk associated with holding bitcoins directly, as well as increase the liquidity and transparency of the market.

Why did it take so long for spot Bitcoin ETFs to get approved?

The SEC has been reluctant to approve spot Bitcoin ETFs for years, citing concerns about market manipulation, fraud, custody issues, and investor protection. The SEC has only approved one futures-based Bitcoin ETF so far, which was launched by VanEck in December 2020.

However, in September 2023, a US Court of Appeals for the District of Columbia Circuit ruled in favor of Grayscale, a leading provider of crypto trusts and products. The court ordered the SEC to set aside its earlier rejection of Grayscale’s application and reopen the review process. The court ruled that there was no justification for the SEC to allow futures-based but deny spot-based Bitcoin ETFs.

The court also noted that Grayscale had complied with all the SEC’s requirements and had demonstrated that it had adequate controls and safeguards to protect its customers’ assets. The court concluded that allowing Grayscale’s application would not harm investors or markets.

How will spot Bitcoin ETFs affect the crypto market?

The approval of spot Bitcoin ETFs is seen as a major milestone for the crypto industry, as it could pave the way for more innovation and adoption. According to some estimates, if all 10 pending applications are approved by March 2024, they could generate up to $1 trillion in assets under management, surpassing the entire crypto ETP market.

Spot Bitcoin ETFs could also boost the demand and price of bitcoin itself, as they would offer more exposure and accessibility to investors who may not want or be able to buy bitcoins directly. Some analysts predict that a successful launch of spot Bitcoin ETFs could trigger a significant price pump for bitcoin, similar to what happened when futures-based bitcoin ETFs were approved in 2020.

What are some examples of spot Bitcoin ETFs?

Several major financial institutions in the US have already applied for regulatory permission to launch spot bitcoin ETFs with the SEC. These include:

• BlackRock: The world’s largest asset manager has filed an application for a spot bitcoin ETF under its iShares brand.
• Fidelity: The second-largest asset manager has filed an application for a spot bitcoin ETF under its Fidelity Digital Assets brand.
• VanEck: The first company to launch a futures-based bitcoin ETF has filed an application for a spot bitcoin ETF under its ProShares brand.
• WisdomTree: The provider of thematic ETPs has filed an application for a spot bitcoin ETP under its WisdomTree Digital Assets brand.
• Valkyrie: The provider of thematic ETPs has filed an application for a spot bitcoin ETP under its Valkyrie Digital Assets brand.

These are just some examples of potential applicants; there may be others who have not yet disclosed their plans or intentions.

The approval of spot bitcoin ETFs is expected to be one of the most significant events in the history of crypto regulation. It could open up new opportunities and challenges for both investors and regulators in this emerging asset class. It could also have profound implications for the future direction and development of crypto technology.