Bitcoin ETFs (Exchange Traded Funds) allow traders to easily buy and sell Bitcoin (BTC), the largest cryptocurrency by market capitalization, through traditional brokerage accounts and the stock market without having to buy or sell Bitcoin (BTC) directly on cryptocurrency exchanges. Allows you to invest in some Bitcoin.

Currently, Bitcoin ETFs are not authorized in the United States, but they are allowed in Canada and some European countries. However, in America, there is something similar. It is a Bitcoin futures ETF that holds derivative contracts whose value is linked to Bitcoin.

However, a more direct investment through a Bitcoin ETF (sometimes technically referred to as a Bitcoin spot ETF), which actually owns Bitcoin, is currently not possible. However, as of January 2024, the U.S. Securities and Exchange Commission (SEC) has announced that financial giants BlackRock, Fidelity, and Grayscale Bitcoin Trust, which aims to convert its Grayscale Bitcoin Trust into an ETF, have More than 10 ETF applications, including Grayscale, are under review and are expected to be finally approved soon.

Since Bitcoin ETFs can be purchased through traditional investment vehicles, approval in the U.S. will dramatically expand the number of Bitcoin investors, while also offering Bitcoin to institutional investors whose investments are limited to regulated products. Many experts believe that it provides peace of mind to invest.

What is an ETF?

ETFs are a common practice in traditional finance, with trillions of dollars invested. ETFs trade on exchanges like stocks, but instead of representing ownership in a single company, ETFs represent ownership in a basket of assets. There are ETFs that track the S&P 500, bonds, commodities such as gold, and many others.

Buying ETFs is as easy as buying stocks. As a result, optimists predict a rush to invest in Bitcoin ETFs.

History of Bitcoin ETF

Cameron and Tyler Winklevoss proposed a Bitcoin ETF in 2013, but their plans have been repeatedly rejected by the SEC. The reason for the rejection was that the Bitcoin market was too volatile, lacked sufficient oversight, and was susceptible to manipulation.

In 2017, another financial product called Bitcoin futures was introduced in the United States. This led to the approval of a Bitcoin futures ETF by the SEC in 2021, although it was primarily aimed at professionals and not the retail traders that the ETF is targeting.

Meanwhile, for years, Grayscale has offered an investment product called the Grayscale Bitcoin Trust (GBTC), which owns tens of billions of dollars worth of Bitcoin. Like a Bitcoin ETF, owners can earn financial returns from their Bitcoin by purchasing a portion of GBTC.

However, GBTC also has drawbacks. First, they are not as widely available as ETFs. Additionally, due to the structure of the trust, although new GBTC can be issued, existing issues cannot be canceled, so there is a possibility that the value of the Bitcoins held and the price of GBTC will diverge. The imbalance between supply and demand actually occurred, and by the second half of 2022, the so-called net asset value (NAV) had fallen to a 50% discount rate.

BlackRock’s Bitcoin ETF application and good news for Grayscale

The tide began to change in June 2023, when the shocking news broke that BlackRock, the world’s largest asset management company, had applied for a Bitcoin ETF in the United States.

After a decade of rejection, Bitcoin ETFs may finally be born in the United States, the world’s largest capital market, after BlackRock, one of the leading companies in the traditional financial industry, has endorsed the idea. An unbelievable enthusiasm was born.

Additionally, other traditional finance (TradFi) companies such as Invesco, backed by Fidelity, Franklin Templeton, and crypto firm Galaxy, as well as Valkyrie, Bitwise, etc. Crypto-native companies followed suit.

Grayscale received good news in August 2023 regarding its attempt to convert the Grayscale Bitcoin Trust into an ETF. A US court has ruled that the SEC’s rejection of Grayscale’s application was “arbitrary and arbitrary” and should be reconsidered.

Amid growing optimism that the SEC will approve a Bitcoin ETF, Bitcoin prices soared in late 2023 and GBTC’s discount to NAV narrowed.

Bitcoin ETF approval deadline

The SEC is expected to announce a decision on whether to approve a Bitcoin ETF between January 8 and 10, 2024. In the run-up to that deadline, issuers and the SEC have held numerous meetings and amended their filings with the SEC one after another. BlackRock and others have announced key partners, including companies that will custody Bitcoin for the ETF and so-called designated participants (APs), who will be responsible for maintaining smooth trading for Bitcoin ETFs. .

FAQs about Bitcoin ETF

Q. Who can invest in ETFs and how to trade them?

A. You do not need to be an accredited investor to purchase an ETF. Anyone can invest.

All you need to do is open an online brokerage account or download one of the many mobile trading apps. From there, you will be able to buy and sell Bitcoin ETFs as one of a wide range of ETFs that track various markets.

Q.What are the advantages and disadvantages of Bitcoin ETF trading?

A. Investing in a Bitcoin ETF rather than buying Bitcoin itself may seem counterintuitive, but it has the following benefits:

• There is no need to store your Bitcoins yourself.
• ETFs are more regulated than Bitcoin, which may provide peace of mind for some investors.
• Traditional brokerages have a longer track record than crypto exchanges, which may ease the fears of skeptics.
• ETFs, which are traditional financial products, have much clearer tax treatment than crypto assets.

However, investing in Bitcoin ETFs also has disadvantages as opposed to buying Bitcoin directly.

• While the crypto market is open 24 hours a day, 365 days a year, ETFs can only be purchased when the stock exchange is open. Stock exchanges are closed on weekday nights and weekends.
• Holding your own Bitcoin is free, but ETFs charge management fees.
• ETFs require you to trust a third-party custodian.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original text: What Is a Bitcoin ETF?