The US Securities and Exchange Commission (SEC) approved the US-listed Bitcoin exchange traded funds (ETFs). The US SEC has given its nod to 11 applications by BlackRock, Ark Investments, Fidelity, Invesco, VanEck and others to launch ETFs tracking the world’s largest and oldest cryptocurrency, ignoring the red flags by officials and investor advocates over the risks associated.
The Bitcoin ETFs will be listed on New York Stock Exchange (NYSE), Nasdaq and Chicago Board Options Exchange (CBOE) and their assets will comprise physical Bitcoin purchased from crypto exchanges and held via custodians like Coinbase. The products track will a Bitcoin benchmark, provided by various exchanges or institutions.
Investors shall understand that a Bitcoin ETF is different from buying Bitcoin or its units directly. Bitcoin ETFs will allow the investors to gain exposure in the digital asset class without getting into the complications and risks of directly purchasing Bitcoin. Investors will have a safeguard from the opaque crypto exchange mechanism. The crypto industry, as a result, and as it should be obvious, is going gung-ho on this aspect.
According to Rajagopal Menon, VP at WazirX, Bitcoin ETFs would enable investors to own Bitcoin indirectly and have access to its price movements without actually buying the token. It is a way to have exposure to the largest crypto by market cap as investors’ funds are tied to Bitcoin’s popularity. “Crypto custody is a concern, especially large institutions and the Bitcoin ETF will be a boon for them,” he said.
“The approval of Bitcoin spot ETFs will attract institutional investors, leading to increased adoption and higher liquidity,” said Edul Patel, CEO at Mudrex. Positive developments in the US crypto sector typically impact market sentiment globally, he added.
Following the announcement, there was not much move in Bitcoin. The largest crypto asset was hovering around $46,300 level, up more than a per cent, with a total market capitalization of more than 900 billion dollars. The oldest crypto asset has rallied about 160 per cent in the last one year.
However, other crypto tokens were really sharply higher. Ethereum, the second largest crypto token, soared about 10 per cent, while XRP gained about 7 per cent. Other altcoins including Polkadot, Polygon, Cardano and Avalanche were up 14-20 per cent. The total market capitalization of the crypto assets was more than $1.75 trillion.
However, Bitcoin spot ETFs already exist in Canada and Europe, but US SEC’s nod open doors for the world’s largest capital market. Analysts expect an influx of institutional funds pouring into the crypto space after SEC’s approval. Some estimates have predicted a $1 billion inflow into BTC spot ETFs in the next three months and $100 billion by the end of 2024.
“We have already seen an increase in interest and asset prices in the past three months. Such capital inflow into a single asset will have a definite cascading effect on all other digital assets with strong fundamentals,” said Vikram Subburaj, CEO at Giottus Crypto Platform. “The capital infusion will not be a standalone phenomenon as there will be a demand-led and competition-driven offering of innovative products.”
“While the initial effects might be noticeable in Bitcoin, legitimizing crypto investment through regulated spot ETFs could draw a diverse investor base, increasing capital flows across various cryptocurrencies. The acceptance of Bitcoin spot ETFs signifies a maturing market and is also likely to extend to other cryptocurrencies in the years ahead,” Patel from Mudrex added.
Some crypto experts see US SEC approval as a big win with a stamp of authorisation, boosting the legitimacy of the crypto industry. They expect ETFs in other cryptos as well in the coming or more geographies opening doors for Bitcoin ETFs in the near future. However, they are still speculations and the approval shall be obtained after a long-fought battle.
Giottus also anticipates ETFs in other crypto assets too. An Ethereum spot ETF is next on the cards and non-US geographies like Hong Kong have also evinced interest in launching similar products, said Subburaj. “This is a watershed movement that will help solidify the position of crypto assets as a preferred alternative investment asset,” he added.
“The market sentiment after BTC ETF approval has peaked and this might trickle down to other developments that have been awaiting regulatory approval. Soon we will see this excitement move to Ethereum as speculation will mount about an Ethereum ETF,” said Menon from WazirX.
