Spot ETF (Exchange-Traded Fund) - is a financial instrument that provides investors with the opportunity to invest in the digital cryptocurrency Bitcoin without the need to directly purchase and hold physical units of Bitcoin. It is called "spot" because the purpose of such an ETF is to track the real price of Bitcoin in the market.
Unlike futures ETFs, which can track future asset prices, spot ETFs attempt to reflect the current market price of an asset. This is achieved by directly buying and holding physical Bitcoins in the fund's portfolio. Once an investor buys shares in a spot ETF, they receive a share in the fund, which is a fraction of the physical Bitcoins managed by the fund.
Applications of large funds such as BlackRock, Fidelity, Invesco and WisdomTree to open a Bitcoin ETF caused a positive on the crypto market and pushed BTC to $30,000 amid expectations of institutional investors entering the cryptocurrency market. However, all the positives disappeared when it became known that the SEC would announce a final decision on them only in 2024. There are opinions in the crypto community that the fall was provoked so that BlackRock could accumulate bitcoin at a lower price before the launch of the spot ETF.
The benefits of spot ETFs include:
Easy Access: Investors can invest in Bitcoin without the hassle of buying and holding cryptocurrency on their own.
Liquidity: ETFs are easily traded on the exchange, providing high liquidity and ease of sale.
Regulation: Spot ETFs are usually regulated by financial authorities, which can increase investor confidence.
Diversification: Investors gain access to a diversified portfolio as the ETF can hold a large number of Bitcoins.
However, it is worth remembering that the share price of a spot ETF can still fluctuate depending on changes in the price of Bitcoin in the market. In addition, investors should familiarize themselves with the terms and costs associated with specific ETFs before investing in them.
Acceptance of Bitcoin Spot ETFs by the SEC
Acceptance of a Spot ETF (Exchange-Traded Fund) for Bitcoin or any other asset in the US requires SEC (US Securities and Exchange Commission) approval for several reasons:
Securities Regulation: The SEC is responsible for the regulation and supervision of the US securities market. Like ETFs, spot ETFs are considered securities because they are investment funds that are traded on an exchange. The SEC provides investor protection by setting standards and requirements for ETFs.
Transparency and Information: The SEC requires all ETFs to provide detailed financial information and ensure the fund's operations are transparent. This is important for investors to be able to make informed decisions about their investments.
Investor Protection: The SEC is also committed to protecting the interests of investors by making sure ETFs comply with regulations and provide access to liquid and reliable investment products.
Market regulation: Cryptocurrencies, including Bitcoin, are a relatively new and high-risk asset class subject to manipulation and volatility. The SEC is committed to ensuring that investors have access to reliable investment products and that the market is not subject to manipulation.
So, the requirement for SEC approval for Bitcoin spot ETFs is part of a broad regulatory framework that aims to ensure investor protection and the stability of financial markets in the United States. It also helps investors to trust these investment products and promotes their distribution in the market.
The SEC (U.S. Securities and Exchange Commission) had already considered several proposals to create spot Bitcoin ETFs, but not one of them had been approved by that time. The SEC has strict requirements and procedures for ETF approval, especially when it comes to cryptocurrencies, which are considered a high-risk and volatile asset class.
When deciding on a Bitcoin spot ETF, the SEC considers many factors, including security issues, market manipulation, liquidity, and investor protection. They also take into account the opinion of the public and the interests of the market. The likelihood of approval for a Bitcoin Spot ETF or any other crypto-currency ETF may change depending on changes in SEC policy and regulatory approach. It may be approved in the future, but it depends on many factors and may take time.
According to Bloomberg analysts James Seyffart and Eric Balchunas, the probability of such an outcome of events today reaches 65%.
The head of the investment company ARK Invest, Cathy Wood, said that the US Securities and Exchange Commission (SEC) may approve several spot bitcoin ETFs at once:
“I think the SEC, if it plans to approve a bitcoin ETF, will approve more than one at once,” says Katie Wood.
How will the adoption of a Bitcoin spot ETF affect the crypto market?
The adoption of a spot ETF (Exchange-Traded Fund) on Bitcoin can have a significant impact on the crypto market in several key aspects:
Increasing Ease of Access to Cryptocurrencies: A Spot ETF provides investors with an easier and more convenient way to invest in Bitcoin without having to buy, hold, and manage cryptocurrencies on their own. This may lead to an increase in the number of investors and capital pouring into the crypto market.
Increased liquidity: ETFs usually have high liquidity as their shares are traded on an exchange. The appearance of a spot ETF on Bitcoin can increase the liquidity and turnover of this cryptocurrency in the market.
Greater institutional interest: The adoption of an ETF could attract more institutional investors such as pension funds, hedge funds, and institutional investment firms. These investors can bring large amounts of capital into the market.
Reducing Volatility: The introduction of ETFs could smooth out Bitcoin's volatility. When investors can easily buy and sell ETFs on an exchange, it can reduce the need for large transactions in the Bitcoin market that can lead to price swings.
Increased regulation: As ETFs are subject to regulation, the adoption of spot ETFs may also increase regulatory intervention in the crypto market. This could lead to improved standards and investor protection, but it could also limit some of the anonymity and decentralization aspects that come with cryptocurrencies.
Increasing general interest in cryptocurrencies: In general, the adoption of a spot ETF can increase interest in cryptocurrencies among the public, the media and investors, which can accelerate their acceptance as an additional asset class and a popular investment vehicle.
It is important to note that the impact of a Spot ETF on Bitcoin and the crypto market depends on many factors, and the results can be complex and mixed. In addition, each spot ETF will have its own characteristics that will affect its impact on the market.