Complete explanation of Spot Bitcoin ETF, Trading and Impact
Complete explanation of Spot Bitcoin ETF, Trading and Impact
Spot-based bitcoin exchange-traded funds (spot bitcoin ETF) have been approved by the US Securities and Exchange Commission (SEC). This is driving crypto prices to rise.
Reporting from Refinitiv, the price of bitcoin continues to creep up, especially in early December 2023. Bitcoin even touched the US$49,000 level intraday on January 11, 2024 after the spot bitcoin ETF was approved by the SEC. This position is the highest level since December 2021 or around the last two years.
The SEC's step in approving this was welcomed positively by market players so that altcoins (coins other than bitcoin) also experienced appreciation.
The SEC has officially approved 11 spot bitcoin ETFs for trading, such as Blackrock's iShares Bitcoin Trust (IBIT), ARK 21Shares Bitcoin ETF (ARKB), WisdomTree Bitcoin Fund (BTCW), Invesco Galaxy Bitcoin ETF (BTCO), Bitwise Bitcoin ETF (BITB ), VanEck Bitcoin Trust (HODL), Franklin Bitcoin ETF (EZBC), Fidelity Wise Origin Bitcoin Trust (FBTC), Valkyrie Bitcoin Fund (BRRR), Grayscale Bitcoin Trust (GBTC), and Hashdex Bitcoin ETF (DEFI).
What are ETF?
ETF (Exchange Traded Fund) is an investment instrument intended to enable investors to own an asset/several types of assets without having to actually own it. ETF are similar to mutual funds in that there is an investment manager (MI) who manages customer funds. Therefore, MI will collect funds so that they can be managed and provide returns for investors.
Considering that it is traded on the stock exchange, ETF can be bought and sold without having to visit/connect with MI or selling agents, making it instant and faster.
For the record, basically the ETF issued must have an underlying asset where the ETF price will move in accordance with the underlying/reference asset. For example, stock ETF, bond ETF, currency ETF, and recently bitcoin ETF. Based on price movements, if the underlying asset rises, the ETF will also strengthen. Likewise, if the underlying asset falls, the ETF will weaken.
Spot bitcoin ETF
Spot bitcoin ETF is an investment instrument that represents the value of bitcoin itself and is traded on the conventional stock market. This is similar to mutual funds, where investors entrust their funds to a party to manage them.
This is a way for investors to gain exposure to the value of the underlying asset without owning it directly. Therefore, when the price of the underlying asset rises (in this case bitcoin) the ETF will rise, and vice versa it will fall if the price falls.
Vijay Ayyar, vice president of international markets for Indian crypto exchange CoinDCX, revealed that the bitcoin and crypto story will “take off” in 2024, as the approval of a spot bitcoin ETF could spark interest from retail investors who were previously just waiting.
Advantages and Disadvantages of spot bitcoin ETF
There are several advantages and disadvantages to spot bitcoin ETF. One of the advantages is the simpler process for investors to get exposure to bitcoin without having to open a separate wallet. However, on the other hand, the drawback is the need to pay fees charged to management assets.
What is the Impact of Spot Bitcoin ETF Approval?
This approval is a positive sentiment for market players, especially those who have little experience in trading cryptocurrencies because investors can buy and sell bitcoin more easily.
There are at least two impacts after the approval of this ETF, namely increasing distribution in the United States (US). This has a moderate impact, as there have been ETFs outside the US for years. Next, there is an increase in the credibility of crypto as an 'asset class'. This is expected to have a very high impact on the crypto industry itself.
"There is now a US spot bitcoin ETF, and bitcoin is no longer considered suspicious or unknown. This has significantly changed the perception of the general public," said the CEO of crypto liquidity provider Keyrock
"The approval of a Bitcoin ETF has huge implications for US investors because they can now hold crypto in their brokerage accounts, something they couldn't do before," Timo Lehes, co-founder of blockchain company Swarm Markets.
"This gives the green light to diversify the portfolio into assets, and as a result, we expect large capital inflows into the market." added Timo.
The approval of a spot bitcoin ETF represents an important milestone in the world of finance, signaling a major shift in the perception and utilization of bitcoin as a primary investment asset.
The approval is expected to catalyze the influx of large amounts of institutional capital into the bitcoin market, which could increase liquidity, reduce volatility, and further legitimize the cryptocurrency in the eyes of traditional investors.
As the financial landscape evolves to incorporate these innovative investment vehicles, bitcoin and broader cryptocurrencies are on the cusp of potential transformative growth and increasing acceptance, marking a watershed moment in integrating digital assets into the global financial ecosystem.
If bitcoin becomes more widely accepted in various countries, this has the potential to increase the price of bitcoin itself.
First Trade of Spot bitcoin ETF
On Thursday US time, the spot bitcoin ETF was first traded and experienced considerable price volatility. Noted spot bitcoin ETFs generated $4.6 billion worth of stock trades, according to LSEG data.
GBTC closed up 0.5%, well off the day's high, while IBIT fell more than 4% after initially rising in morning trade. Both funds saw tens of millions of shares traded on Thursday.
The high trading volume at the close of trading is considered to be no major problem with the ETF on the first day.
"Trading today was very good, very orderly," said Rachel Aguirre, iShares' U.S. head of product.
It is hoped that the trading volume on the first day will be consistent or even more so in the future. This expectation is highly desirable because trading volume will be one of the key metrics for investors considering that funds with more trades are seen as more efficient.
Spot bitcoin ETF fees
Spot bitcoin ETF fees range from 0.2% to 1.5%, with many companies also offering to waive fees completely for certain time periods or for certain dollar volumes of assets.
