BlackRock, Fidelity, Invesco, VanEck, WisdomTree, and more have filed for a spot bitcoin ETF in the USA over the past few weeks. Other jurisdictions (e.g., Hong Kong, Brazil, Canada) have already seen spot bitcoin ETF approvals, but this is a bit different.
Given the size and importance of the USA financial markets, both the TradFi and crypto world are bumping with excitement around what this could mean for these tokens.
But, let’s take a step back. What is an “ETF”?
“An exchange-traded fund (ETF) is a diversified collection of assets (like a managed fund) that trades on an exchange (like a share)” — BlackRock
Put even more simply:
A registered investment house buys assets (stocks, bonds, crypto, etc.), they create an investment product for you, you choose to invest (buy shares) in that product or not.
Shifting to the specific topic at-hand, a spot bitcoin ETF in the USA simply trades on the price of bitcoin, hence the word “spot”. A spot bitcoin ETF investment product could work as follows:
- Registered investment house submits SEC filing (and gets approval)
- Registered investment house procures bitcoin and securely custodies
- Registered investment house offers spot bitcoin ETF product on a regulated exchange
- Through your investment platform (Vanguard, Robinhood, your broker, etc.) purchase shares in that ETF product
- If bitcoin price goes up, you should make money. If bitcoin price goes down, you should lose money.
Now, you might be thinking — why all this trouble when I can just buy bitcoin myself?
Well, not everyone has that luxury nor wants to do so; i.e., many people don’t understand private keys and digital asset custody, others don’t care enough to go through that trouble, and there are heavily regulated financial institutions who may not want to take on the enterprise risk of holding the underlying asset.
With that in-mind, what are the benefit of these moves? Why do people care about spot bitcoin ETFs?
I think it comes down to one key theme: accessibility.
A regulated spot bitcoin ETF essentially allows anyone with an investment account to “buy” bitcoin, without actually buying bitcoin. Sure, you don’t own the asset. But, you do have the same exposure to the price as someone that does own the asset. Ever heard of physical gold ETFs? Similar concept.
People and institutions that have historically been on the sidelines will now be able to get in the game, should they choose. With increased demand, and a fixed supply, simple economics might just play out (disclaimer: this is not investment/financial advice and shouldn’t be taken as such — do your own research). This is a major reason why people are so excited about all the spot bitcoin ETF activity.
At the end of the day, it comes down to SEC approvals. To-date, the SEC has rejected every single spot bitcoin ETF application. Lol. However, with the likes of BlackRock and Fidelity now in the mix — things might just be a little different. Only time will tell! Certainly exciting activity to keep an eye on!
{{content-divider}}
If you liked this article, consider subscribing to my newsletter web3, simplified. You’ll get my top web3 articles and insights direct to your inbox every Tuesday!
Interested in continuing the conversation? Connect with me on Twitter or Linkedin.
Disclaimer: the content written in this article is solely for information purposes and does not convey financial advice. It is not intended to be a recommendation for bitcoin nor against, but rather an informational piece on the current state of spot bitcoin ETFs and the details behind them. Do your own research.
