SEC's Approval of Spot Bitcoin ETF: What to Expect and Investment Notice
I still haven't recovered from the news that Bitcoin has taken a big step on the path to a spot ETF till now. After at least a six-year wait, the U.S. Securities and Exchange Commission (SEC) finally approved the listing and trading of a number of spot bitcoin exchange-traded product (ETP) shares.
What does this even mean?
Well, just imagine: everyone can own Bitcoin shares as easily as we buy shares of Apple, and the so-called "spot Bitcoin ETF" basically opens a door for you to track Bitcoin's price like what we are doing to gold.
Sounds exciting, right? Now, get ready for a roller coaster! This approval could make spot bitcoin a game changer for the whole crypto craze. Buckle up, and let's explore the twists and turns that led us here!
In this post, we'll show you:
- What Is a Spot Bitcoin ETF?
- Why the Bitcoin ETF Approval Takes So Long?
- How Does a Spot Bitcoin ETF Work?
- How is Bitcoin ETF Different from Bitcoin Futures ETFs?
- Spot Bitcoin ETFs vs. Direct Bitcoin
- List of Approved Spot Bitcoin ETFs
- Should You Invest in Spot Bitcoin ETFs (Pros & Cons)
- How to Invest in Spot Bitcoin ETFs
What Is a Spot Bitcoin ETF?
Let's start with some basics.
A spot bitcoin ETF is an exchange-traded fund that tracks the price of bitcoin rather than stocks or bonds. The term "spot” indicates the actual immediate purchase and ownership of the underlying asset. This means that the value of a spot bitcoin ETF will be directly correlated to the price of bitcoin. To put it simply, It's a type of investment fund that allows you to invest in Bitcoin without actually having to buy and hold the cryptocurrency yourself.
Why the Bitcoin ETF Approval Takes So Long?
As mentioned at the beginning of this post, it took over 6 years for Bitcoin to take this step. Well, it’s reasonable for cryptocurrency in some ways. The SEC, just like a protective parent, was worried about Bitcoin's wild swings and potential scams. They wanted to make sure most investors like you wouldn't get your fingers burned when playing this game. So, "No" is a merciless answer when it comes to all proposals for these ETFs.
But now, as Bitcoin and infrastructure keep growing and getting mature, meanwhile more and more rules and regulations are popping up to keep things safe, the SEC finally said “YES” to approve the Bitcoin ETF on Jan 10, 2024.
How Does a Spot Bitcoin ETF Work?
Hey, now you have a basic outline of the hot spot Bitcoin ETF, are you in or not? Hold on, you'd better know more about how exactly it works.
Well, it's simple and straightforward after the approval of bitcoin ETF. When you buy shares of a spot bitcoin ETF, it means you buy a piece of the fund's portfolio of bitcoin. The price of your shares will go up and down with the price of Bitcoin in real-time, and you can sell your shares at any time without ever directly holding Bitcoin.
It's quite similar to a physically backed gold ETF, but the SEC may require issuers of spot bitcoin ETFs to employ a cash redemption model, rather than the traditional in-kind redemption model for the funds. Anyway, for you, it's the same end.
Spot Bitcoin ETFS vs. Bitcoin Futures ETFs
You might also have heard of the Bitcoin Futures ETFs and get confused between them. Well, I have to say, basically, Both offer exposure to Bitcoin's price, but they realize so in fundamentally different ways.
Here are some quick takeaways:
Underlying Asset: Spot Bitcoin ETF means you actually own Bitcoin which is held by a secure digital vault; while Bitcoin Futures ETFs means you invest in contracts of bitcoin futures, and you don't directly own any Bitcoin with these ETFs.
Performance: Spot Bitcoin ETF directly tracks the current market price of Bitcoin, which reduces fees, risks, and tracking errors; while Bitcoin Futures ETFs cannot perfectly mirror real-time Bitcoin's price movements due to the cost of rolling over futures contracts and other factors.
Advantages & Disadvantages:
Spot Bitcoin ETFs offer an easier way to understand and invest in (especially for those unfamiliar with futures contracts), as well as greater transparency of underlying Bitcoin holdings. However, it also means a higher fee because vaults need to store and manage actual Bitcoin.
Bitcoin Futures ETF is less volatile and potentially offers leverage for experienced investors. However, it's more complicated to understand and may involve additional risks and unexpected costs associated with futures contracts.
In summary, if you want to gain direct exposure to bitcoin without setting up a cryptocurrency exchange account (though digital or cold storage), a spot bitcoin ETF is a good choice for you. However, if you want a lower-cost way to trade bitcoin or if you still worry about regulatory risk, a bitcoin futures ETF may be better.
Spot Bitcoin ETFs vs. Direct Bitcoin
Though some of you might be a direct holder of bitcoin or other cryptocurrencies, you may still want to see a comparison and take a wait-and-see approach to this news.
Here are the pros and cons of buying a spot Bitcoin ETF or holding Bitcoin directly:
Deciding between buying a spot Bitcoin ETF and holding Bitcoin directly in a wallet involves evaluating the pros and cons under different criteria:
Accessibility and Convenience:
Spot Bitcoin ETFs are easier to buy and sell through your existing brokerage account while direct Bitcoin holding requires setting up a crypto wallet and exchange account, navigating unfamiliar interfaces, and handling private keys securely.
Regulation and Security:
Spot Bitcoin ETFs are subject to SEC regulations and held by third-party custodians, offering potentially better security; while a direct Bitcoin means the responsibility for securing the wallet and managing private keys all on your own.
Fees and Costs:
Spot Bitcoin ETFs require management fees and trading commissions on top of Bitcoin's price fluctuations; while direct Bitcoin ownership only requires exchange fees and potential network transaction fees.
Control and Flexibility:
Spot Bitcoin ETFs have limits on direct control and potential use in DeFi applications while a direct Bitcoin means full control over your cryptocurrencies.
In summary, if you are an experienced professional in crypto trade, you may be more suitable for holding Bitcoin directly which offers potential leverage and opportunities in DeFi. As for potential vulnerability to hacks or accidental loss, you can rely on a reliable crypto wallet or crypto phone to safeguard your assets in the Web3 world.
List of Approved Spot Bitcoin ETFs
As of today when this post was published, 11 spot Bitcoin ETFs are apprived in the US market. Here's a list of them:
|Annual Expense Ratio
|ARK 21Shares Bitcoin ETF
|ARK Investment Management
|Bitwise Bitcoin ETF
|Bitwise Asset Management
|Fidelity Wise Origin Bitcoin Trust
|Franklin Bitcoin ETF
|Franklin Templeton Investments
|Grayscale Bitcoin Trust
|Hashdex Bitcoin ETF
|Invesco Galaxy Bitcoin ETF
|iShares Bitcoin Trust
|Valkyrie Bitcoin Fund
|VanEck Bitcoin Trust
|WisdomTree Bitcoin Fund
You can Consider these expense ratios when comparing ETF issuers, as they represent the annual fee charged by the fund for managing your investment. Lower expense ratios generally mean more of your returns stay in your pocket.
6 Things to Know Before You Leap into Spot Bitcoin ETFs
Anyway, the news is buzzing with talk of spot Bitcoin ETFs finally landing. It definitely opens a door for mainstream investors to grab a piece of the crypto pie. However, if you are new to this wonderland, Think the following things twice before you jump in headfirst:
1. It's NOT Owning Bitcoin But Exposure
3. Mind Fees & Returns
4. The Regulatory Landscape is Still Evolving
5. Don't Put All Your Eggs in One Basket
6. Bonus Tip:
How to Invest in Spot Bitcoin ETFs?
Speaking so far, you may have a general impression of this new spot ETFs. If you have made up your mind to join this game, here are steps on how you can start investing just as you buy and sell shares of other ETFs:
Step 1: Set up an investment account such as an individual brokerage account, a joint brokerage account, or any variety of individual retirement account (IRA).
Step 2: Fund your account with cash by transferring money from your bank account.
Step 3: Compare the expense ratios, performance track record, liquidity, and issuer reputation of different spot Bitcoin ETFs, and choose the best one for yourself.
Step 4: Place an order indicating the desired amount or number of shares, and choose the type of order (e.g., market order for immediate execution, limit order for specific price).
Step 5: Monitor your investments by tracking their performance, and news related to Bitcoin and the ETF, and then adjust your holdings as needed to align with your investment strategy.
The SEC's approval of spot Bitcoin ETFs marks a watershed moment in the financial landscape. Cryptocurrency, once relegated to the fringes, has now stepped onto the grand stage of Wall Street. But beware, this newfound accessibility comes with its own set of twists and turns.
In conclusion, you can expect an increasing investment interest since it offers a familiar and regulated entry point for the masses. But at the same time, you should know that Bitcoin's wild price swings haven't gone anywhere, so be prepared for a bumpy ride and keep an eye on evolving regulations.
You should also notice that spot Bitcoin ETF does not equal direct Bitcoin ownership, meaning no control ability or storage responsibilities, corresponding fees, and shrinking returns.
All in all, diversification is key. Moreover, though the SEC's approval opens a path for wider Bitcoin adoption, it's not a guaranteed shortcut to riches. Approach these ETFs with caution, a healthy dose of research, and a long-term perspective. Remember, informed decisions pave the way for a more satisfying investment journey, even in the rollercoaster world of Bitcoin.