Author: Daniel Li, CoinVoice
After a long bear market, the market is increasingly hungry for good news. It is difficult to boost overall market sentiment simply by relying on the emergence of innovative projects. The market is in urgent need of a new flashpoint. Just as Grayscale's Bitcoin Trust Fund (GBTC) obtained the U.S. Securities and Exchange Commission (SEC) filing license in 2020, which set off a market craze at the time, the one most likely to play this role now is the highly-invested The anticipated Bitcoin spot ETF.
Although the U.S. SEC has been cautious about Bitcoin spot ETFs and once again postponed its approval, the market is still optimistic about its final approval. According to current market forecasts, the Bitcoin spot ETF has a 75% probability of being approved within this year, and a 95% probability of approval by the end of 2024 at the latest. The bear market has suppressed the market for a long time, and the approval of the Bitcoin spot ETF will be a potentially major benefit and is expected to become the engine of the next round of crypto bull market.
What is Bitcoin spot ETF and why is it so popular with capital?
To understand Bitcoin spot ETFs, we first need to understand the concepts of ETFs and Bitcoin futures ETFs. An ETF (Exchange Traded Fund) is an investment vehicle designed to track the price and performance of a specific asset. They can be traded on stock exchanges, and investors can buy and sell ETFs like stocks.
The Bitcoin Futures ETF is a fund that holds futures contracts linked to the price of Bitcoin. In fact, the Bitcoin Futures ETF does not hold any Bitcoin directly. Their investment strategy is to track Bitcoin's price movements by holding futures contracts. Through Bitcoin futures ETFs, investors can buy, sell and trade to participate in the rise and fall of Bitcoin prices.
The Bitcoin Spot ETF is a fund that allows investors to buy and sell real Bitcoin at the current market price. In fact, the foundation buys, sells and holds real Bitcoin directly. This allows investors to hold Bitcoin without having to manage their own Bitcoin wallet. Through Bitcoin spot ETFs, investors can conveniently participate in the Bitcoin market and benefit from the rise and fall of Bitcoin prices.
Advantages of Bitcoin Spot ETF:
Bitcoin spot ETFs have the advantages of futures ETFs, such as direct investment in Bitcoin without going through an exchange, lower transaction fees, and simplified processes. Spot ETFs have lower risks than futures ETFs. Spot ETFs invest in actual Bitcoin prices, meaning investors hold real Bitcoins for the duration of the contract. This feature of holding Bitcoin is also considered a more legitimate way to invest,
Additionally, as an exchange-traded fund, the Bitcoin Spot ETF can be traded on stock exchanges. This means that investors can buy or sell Bitcoin spot ETFs just like trading stocks, providing more flexible investment and trading strategies. Investors can buy or sell Bitcoin spot ETF shares at any time according to market changes and enjoy the advantages of flexibility. This has also made Bitcoin spot ETFs a popular investment tool, attracting more investors to participate in the cryptocurrency market.
In addition, Bitcoin spot ETFs also provide traditional financial institutions and capital markets with more cryptocurrency-related investment opportunities. As the Bitcoin market continues to develop and mature, more and more institutional investors want to participate. The launch of the Bitcoin Spot ETF provides these institutions with an investment vehicle that meets compliance requirements, allowing them to participate in the Bitcoin market and earn returns within an appropriate regulatory framework. This further boosts the development of the Bitcoin market and brings cryptocurrencies into the perspective of the traditional financial sector.
Reasons why capital favors Bitcoin spot ETFs:
Capital's favor for Bitcoin spot ETFs stems from its optimism about its broad future prospects. Here are some advantages that explain why Bitcoin spot ETFs are so popular among capital:
1. Expand market size and participation: As one of the main categories of exchange-traded products, ETFs have a huge market size, with a total value of US$7 trillion. The launch of a Bitcoin spot ETF will further expand participation in the cryptocurrency industry and attract more investors to the market, thereby expanding the size of the entire market. For capital, a larger market size means more opportunities and potential profits.
2. Provide opportunities to directly participate in the Bitcoin market: Compared with Bitcoin futures, Bitcoin spot ETFs are closer to the real Bitcoin market. Spot Bitcoin is a direct transaction of the actual digital currency. This opportunity to directly participate in the Bitcoin market allows capital to manage and allocate Bitcoin assets more flexibly, further improving investment efficiency.
3. Meet market demand and expand investment channels: With the popularity of the cryptocurrency market, more and more traditional financial institutions hope to enter this field. However, due to regulatory restrictions and channel restrictions, these funds cannot directly enter the crypto market. Bitcoin spot ETFs provide a more convenient and easy-to-operate investment method, providing traditional financial institutions and large capital with access to the crypto market.
4. Provide higher transparency and regulatory compliance: Bitcoin spot ETFs are listed on stock exchanges and are directly subject to review and supervision by regulatory authorities. Compared with some unregulated or less regulated cryptocurrency exchanges, they have Greater transparency and regulatory compliance. This provides a safer and more reliable investment environment for capital.
The curse of Bitcoin spot ETF may be broken
The idea of a Bitcoin spot ETF has been brewing for years. Although numerous proposals have been submitted to regulators, so far, no Bitcoin spot ETF has been approved to be listed on a major U.S. stock exchange, which seems to have become a curse on the U.S. crypto market. However, outside the United States, Bitcoin spot ETFs have successfully been approved. As early as February 18, 2021, Canada’s Purpose Investment Company successfully launched the world’s first Bitcoin spot ETF—Purpose Bitcoin ETF, and opened it in Toronto. It was listed on the stock exchange, and the trading volume reached nearly US$400 million on the first day of the issuance.
As the center of the global encryption market, various investment institutions in the United States will obviously not give up on this market. Since the Winklevoss brothers were the first to apply for a Bitcoin spot ETF in 2013, institutions in the United States have applied for a Bitcoin spot ETF every year, but without exception All were rejected. Because there were too many failures, the application for Bitcoin spot ETF did not attract too much attention from the market in the past. People no longer seemed to have much expectations for whether the application for Bitcoin spot ETF could be approved in the United States. Until June this year In March, BlackRock, the world's largest asset management company, submitted an application for a Bitcoin spot ETF, which once again reignited people's expectations for the approval of the Bitcoin spot ETF application.
It is reported that BlackRock manages more than 9 trillion US dollars in assets. In this application document, BlackRock also proposed Coinbase as the cryptocurrency custodian and spot market data provider, and Bank of New York Mellon as the cash custodian. Obviously, BlackRock is well prepared when it comes to applying for a Bitcoin spot ETF. It is worth mentioning that BlackRock has only been rejected once out of the past 576 ETF applications.
Because the market is optimistic about BlackRock's Bitcoin spot ETF application, some institutions that failed to apply earlier have also joined the ranks of applying for Bitcoin spot ETFs again. They believe that if BlackRock is approved, then Other similar applications may also be approved. According to data, as of August, eight well-known institutions have applied for Bitcoin spot ETFs. Such a capital-intensive application for a Bitcoin spot ETF will obviously not come out of nowhere. The curse of being unable to apply for a Bitcoin spot ETF in the United States, after 10 years of long battles, may be about to be broken in this wave of applications.
What impact will Bitcoin spot ETFs have on the crypto industry?
Bitcoin spot ETFs have been approved in some countries, but for the global encryption market, the United States, as the global encryption center, the U.S. SEC’s approval of Bitcoin spot ETFs is still of great significance. According to a forecast by Bloomberg ETF analyst Eric Balchunas, if a Bitcoin spot ETF is approved, the United States could account for 99.5% of global crypto ETF trading volume. Therefore, the importance of the US market is self-evident. Once the United States approves a Bitcoin spot ETF, what impact will it have on the global crypto market?
1. Coinbase may become the biggest winner behind the Bitcoin spot ETF competition
Once the ETF application is approved, the biggest gainer in the market will not be the ETF applicant. Although they will also receive great benefits, in comparison, Coinbase is the biggest winner behind it.
The SEC's previous rejection of Bitcoin spot ETFs was due to a lack of regulatory transparency. Therefore, this wave of institutions applying for ETFs have added surveillance-sharing agreements to meet regulatory requirements. In the supervision sharing agreement, the asset management company must select a partner to serve as the custodian of the Bitcoin fund, responsible for providing supervision sharing services and allowing both parties to share information about transactions, clearing activities and customers to reduce the risk of market operations. In this regard, Coinbase, as the largest and compliant crypto exchange in the United States, is undoubtedly the best choice.
In the current Bitcoin spot ETF application competition, in addition to BlackRock and Coinbase confirming the partnership for Bitcoin spot ETF, Fidelity, VanEck, Ark Invest’s 21Shares, Valkyrie and Invesco have all submitted revised applications. Apply and designate Coinbase as a partner. Once the SEC approves the applications of these asset institutions in the future, the huge assets under the names of these asset management companies will be hosted on Coinbase. In an analysis included in BlackRock’s ETF filing, Nasdaq estimated that 56% of the $129 billion in U.S. Bitcoin trading was conducted on Coinbase, according to CoinGecko data. In the future, as Bitcoin With the development of currency spot ETFs, this proportion is expected to further expand. Coinbase will also gain huge benefits from this and become the biggest winner in this competition.
2. Bitcoin spot ETF may become the "engine" for the crypto market to turn from bear to bull.
Once the Bitcoin spot ETF is passed, it will mean that it will provide a safe and effective "pipeline" for massive funds from traditional finance to flow into the crypto world, which will have a more profound impact on the crypto market. Especially since the current market has been suffering for a long time. From 2022 to now, we have witnessed the thunderstorms of various crypto institutions and the suppression of regulatory policies. Even Binance and Coinbase, which are industry leaders, have encountered multiple regulatory aspects. Due to the suppression, the price of Bitcoin has also dropped from the highest point of 45,000 US dollars in early 2022 to the current US$25,000. Market investors once lost confidence in the encryption market. At this time, a major positive is urgently needed to stimulate the market from bear to bull and start a new round of bull market.
The Bitcoin spot ETF happens to have these capabilities. You must know that the asset management company that applied for the Bitcoin spot ETF, BlackRock alone, has nearly 9 trillion US dollars in assets behind it. And the asset management company that applied for the Bitcoin spot ETF The company is far more than just BlackRock. As more asset management companies pour into this field, the amount of traditional funds entering the crypto market will be a huge number. The SEC’s approval of a Bitcoin spot ETF is the clarion call for a bull market charge in the crypto market.
3. Accelerate the mainstreaming process of crypto assets
The launch of Bitcoin spot ETF provides institutional investors with a more convenient and standardized way to participate in the crypto market. Since ETFs are a more traditional investment tool, their launch will allow more investors to participate in the crypto market in a more convenient way, thereby increasing the awareness and popularity of cryptocurrencies. This will help the size and liquidity of the crypto market further expand, thereby attracting more institutional investors to enter the market.
In addition, the supervision sharing agreement implemented by the Bitcoin Spot ETF will further increase the transparency of encryption market supervision, thus improving market credibility and investor confidence. These agreements will also help the encryption market to reach an agreement on the regulatory methods of the U.S. market, thereby promoting more regulatory policies and standards suitable for the encryption market, which will help the encryption market become more mature and stable. In addition, the supervision sharing agreement can also allow regulatory agencies to have a more comprehensive understanding of the operations and risks of the crypto market, thereby better protecting the legitimate rights and interests of investors.
Summarize
Although there are many reasons to support the approval of a Bitcoin spot ETF, the outcome is still difficult to predict until the U.S. SEC makes a final decision. However, logically, since the SEC has allowed high-risk Bitcoin futures ETFs to be listed, there is no reason to reject Bitcoin spot ETFs. The SEC’s previous rejection of Bitcoin spot ETF applications on the grounds of lack of regulatory transparency is no longer valid because new applications have joined the supervision sharing agreement. The SEC’s reasons for delaying approval this time are also different from past delays. It is reported that Nasdaq is preparing a regulatory cooperation agreement with an American Bitcoin trading platform. The SEC may be waiting for traditional financial institutions to complete infrastructure construction. Therefore, it seems only a matter of time before a Bitcoin spot ETF is listed in the United States.
