Bitcoin Spot ETF Approval Could Attract Millions to Crypto
Cryptocurrency investors have a lot to look forward to this year — and 2024 is already starting with a bang as bitcoin spot ETF ruling looks imminent.
Fans of the digital currency have fought for the U.S. Securities and Exchange Commission’s approval of a bitcoin spot fund for years now. They might have their day soon, too, as a Jan. 10 deadline approaches. If given the go-ahead, experts have reason to expect it to be a watershed moment for crypto adoption, with Reuters writing it would “throw open the market to millions more investors and draw billions in investments.”
Here’s what you need to know.
What is a bitcoin spot ETF?
There are many ways to buy bitcoin already, from purchasing it on an exchange, to buying other cryptos that track bitcoin prices, to investing in bitcoin futures exchange-traded funds (ETFs). These futures funds differ from the spot ETFs that companies are currently vying to bring to market; first approved in 2021, the futures ETFs consist of futures contracts, or agreements between two parties to exchange bitcoin when it hits a specific price point. Many investors buy shares of bitcoin futures ETFs because they can provide price gains without actually having to hold the volatile asset itself.
Spot ETFs are different in that they actually do consist of bitcoin investments. Instead of futures contracts, bitcoin spot ETFs directly hold bitcoin as an underlying asset and track its prices. Investors in these funds would have greater exposure to the potential negative price swings of bitcoin but enjoy exposure to the actual asset (rather than just a contract).
It’s been over 10 years since the first application for a spot bitcoin ETF was filed. In the last several years, efforts to bring these funds to the masses have heated up: Crypto asset manager Grayscale sued the SEC for repeatedly rejecting its spot fund applications in 2022, and after a year-long court battle, the D.C. Court of Appeals sided with Grayscale.
More recently, finance giants BlackRock and Fidelity (which manage over $8.5 trillion and $4.5 trillion in assets, respectively) both applied for their own spot bitcoin ETFs, bringing the concept into the institutional mainstream.
Why does a bitcoin spot ETF approval matter?
For investors who already own bitcoin, the approval of a bitcoin spot ETF isn’t necessarily an earth-shaking event. But for the big-picture crypto industry, experts argue that it would be huge.
“A U.S.-regulated spot bitcoin ETF could significantly increase [bitcoin’s] accessibility, liquidity, demand and price,” says Martin Leinweber, digital assets product specialist at MarketVector Indexes. “It allows investors to safely access cryptocurrency without needing to handle digital assets directly.”
Indeed, many risk-averse potential investors may have been holding back from bitcoin because it’s more volatile than other investments, like stocks or bonds. By introducing a spot bitcoin ETF, these investors could hold the crypto without having to manage it themselves. In other words, this is the event that could make crypto fence-sitters finally choose to take the dive.
The approval of a spot ETF won’t just legitimize bitcoin investing in the eyes of investors; experts also expect that it would bring greater interest — and a flood of capital — from larger financial institutions, as well.
“There’s a lot of anticipation among the Wall Street folks about these ETFs,” says Austin Alexander, co-founder of blockchain developer LayerTwo Labs. “It’s clear that these products will help to make bitcoin a legitimate asset in the eyes of institutions.”
Leinweber raises a hypothetical situation: If financial advisors, who manage around $30 trillion in assets in the U.S., allocate “just 1% of this amount” into spot bitcoin ETFs, “it would translate to $300 billion invested in bitcoin.” And that’s major.
Would a spot bitcoin ETF approval impact bitcoin prices?
All of this new investing could be a boon to bitcoin prices, which have surged by 150% in the last year. Today, bitcoin trades for over $43,500 apiece — a price not seen since April 2022.
“There might be an initial dip once an approval happens, given that the market has been somewhat front-running the approval of these ETFs,” says Brian Evans, founder of venture capital firm BDE Ventures, but the inflow of money “will likely be a positive catalyst for [bitcoin]” afterward.
Moreover, there’s reason to believe that approval could greatly strengthen the regulatory oversight of bitcoin. Being that the SEC would monitor any ETFs it approves, there may be greater peace of mind for people in investing in these funds compared to buying bitcoin directly from a crypto exchange and holding it in a digital wallet (which has been the case so far).
What’s next for bitcoin spot ETFs
It’s been a game of waiting for investors optimistic for a bitcoin spot ETF, but the wait may be nearly over. The SEC’s deadline to approve of current bitcoin spot ETFs, including BlackRock’s and Fidelity’s, is Wednesday.
Leinweber points to several recent meetings between the SEC and potential ETF issuers and major exchanges as evidence that investors may finally see approval by the deadline. Crypto news outlets have also noted Fidelity’s recent Form 8-A filing as an optimistic signal — the 8-A form is one of the primary documents for registering new publicly-traded securities on the market.
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