Race to a Bitcoin ETF: TradFi hopes to drive BTC to popularity

The race to the first spot Bitcoin (BTC) ETF is on. BlackRock, the world’s largest asset manager, applied for a BTC spot ETF in mid-June 2023. It thus joined a long list of applicants, including other traditional finance companies (TradFi) such as WisdomTree and Invesco.

Will the US Securities and Exchange Commission (SEC) reject ETF applications as it has done before? What’s the difference this time? 

In this article, TSR answers all your questions.

Why is the Spot Bitcoin ETF coveted?

 Bitcoin ETF

Many have tried, and all have failed. The SEC has rejected every Bitcoin spot ETF application it has received. The list of applicants is long and diverse. Crypto natives Grayscale and Galaxy Digital, alternative investment firms Ark Invest and Valkyrie, and TradFi firms WisdomTree and Fidelity have all been rejected by the US regulator.

What is an ETF?

An exchange-traded fund or ETF is an investment vehicle that tracks the price of an asset, security, or index. An ETF pools investors’ money to obtain the same return as the underlying asset. The Bitcoin Spot ETF will follow the BTC market price in real-time.

The Bitcoin Spot ETF remains a highly coveted milestone for the sector. The approval of the ETF will not only attract institutional investors but will also help retail investors get exposure to BTC with ease.

Investors face several complexities when finding the best cryptocurrencies to invest in. Individuals must learn how to use crypto wallets and protect their private keys. Many face difficulties purchasing cryptocurrencies due to banks’ lack of support for cryptocurrency companies.

All of this could be solved with an ETF that tracks the market value of Bitcoin. It will allow investors to experience the most significant currency without owning the cryptocurrency.

Technical difficulties related to owning a Bitcoin will be eliminated. Investments will be safe from hacks and theft. Additionally, an SEC-approved spot Bitcoin ETF could easily trade alongside stocks and other ETFs at your local TradFi brokerage.

A sign of approval from the US SEC will also ease tension within the industry. There is uncertainty in the cryptocurrency sector following lawsuits filed by the SEC against Binance and Coinbase. Approving a Bitcoin spot, ETF would indicate that the US regulator is willing to reach an agreement with the cryptocurrency sector, prioritizing investor protection.

Isn’t there already a Bitcoin ETF?

The answer is yes. The SEC approved the ProShares Bitcoin Strategy ETF (BITO) in 2021. The ETF was so popular at its debut that it became the fastest investment vehicle to reach a trading volume of over $1 billion. BITO achieved this feat in just two days in October 2021.

However, BITO does not track Bitcoin spot prices.

BITO offers investors exposure to Bitcoin futures. A futures contract is a financial derivative contract that obligates the contract holder to sell or buy the underlying asset at a fixed price and date. Futures are mainly used for hedging and speculation. Investments in futures may result in more significant losses and lower gains than investing directly in the underlying asset.

The ProShares Bitcoin Strategy ETF explicitly mentions in its prospectus that the fund does not invest directly in Bitcoin.

This ETF is not the ideal way to gain exposure to cryptocurrency. This is why the industry is yearning for a Spot Bitcoin ETF.

Why could this time be different?

Hasn’t the SEC rejected every request it has received?

Well, this time, it is BlackRock who submits the request. He is the largest asset manager in the world, with total assets exceeding $9 trillion. The company manages iShares, one of the largest ETF providers in the world.

The race towards a Bitcoin ETF seems to have reached a boiling point. There is optimism in the market that if anyone can do it, it is BlackRock. Even previously rejected companies like Valkyrie, WisdomTree, Invesco, and Galaxy have submitted new applications shortly after BlackRock’s submission.

Bloomberg Senior ETF Analyst Eric Balchunas tweeted a “fun fact”: BlackRock had a 575-1 record on SEC approval of its ETFs. Balchunas later cooled expectations and said the bitcoin spot ETF has a “50% chance of being approved.”

The analyst added that the SEC could look nasty at Coinbase’s role as the fund’s primary broker.

What could help BlackRock in its attempt to list the first spot Bitcoin ETF is the involvement of the Nasdaq exchange to appease the US SEC.

Bitcoin price manipulation is one of the main problems that concern the SEC. To address this concern, the Nasdaq exchange proposed entering into a co-monitoring agreement with a US Bitcoin spot trading platform to obtain information to detect, investigate, and deter fraud and market manipulation.

BlackRock’s Bitcoin Spot ETF would list on the Nasdaq if approved.

Bitcoin price rebounds after the application for an ETF and the launch of a compatible CEX

Bitcoin ETF

The price of BTC had been falling before the news about multiple Bitcoin spot ETF filings came to light. BTC had dropped to a low of around $ 24,750 in mid-June following the SEC’s lawsuit against Binance and Coinbase. BlackRock’s ETF application filed on June 15 supported the currency’s rally to surpass $30,000 by the end of June 2023.

Another development that boosted investor confidence was the launching of a new cryptocurrency exchange called EDX Markets.

A consortium of leading TradFi institutions, including Charles Schwab, Citadel Securities, and Sequoia Capital, backs EDX. The exchange, which aims to enable “regulatory trading of digital assets,” has launched opportune when the SEC penalizes “unregistered stock exchanges” in the US.

Tradfi hopes to bring BTC to the general market: Good news or bad news?

An ancient Chinese proverb tells its listeners not to judge the news too quickly. An event perceived as “good news” could have harmful consequences over time. The same can be said for “bad news” that gives good results.

So, can we be sure that a spot Bitcoin ETF will end up being “good news” for the cryptocurrency sector?

For investors, the answer is probably yes. A spot Bitcoin ETF could pave the way for institutional and first-time investors to gain exposure to BTC, bringing more capital to the market. Over time, Bitcoin investments could even become “mainstream.”

However, the answer might not be evident if you ask the same question to a cyberpunk. Bitcoin and cryptocurrencies were prophesied to disrupt the traditional financial industry. As the SEC’s war on cryptocurrencies heats up and TradFi companies (BlackRock, EDX) step in to fill the void, we must ask ourselves what the future of a decentralized, peer-to-peer, privacy-friendly currency like Bitcoin might look like.

Will the strength and influence of TradFi swallow up cryptocurrencies? Time will tell.

Conclusion: Could 2024 be the year?

Crypto finance firms and their TradFi counterparts have been chasing the Bitcoin Spot ETF for almost a decade. The ETF is considered by many to be the “Holy Grail” of the crypto industry.

There is a feeling that 2024 may be the year the world finally sees a spot Bitcoin ETF approved in the US.

 

 

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