Are We About to See First Bitcoin Spot ETFs in the US?
October 2021 heralded what many see as a major milestone in the growth of cryptocurrency market. The first Bitcoin-futures exchange-traded fund was launched enabling investors to now buy and sell crypto assets without going through the cryptocurrency exchanges. It is hailed as a watershed moment that will attract mainstream investors and potentially billions in FOMOing money into the industry.
However, Bitcoin futures aren’t enough for many crypto diehards. They want a physically-backed spot-priced crypto ETF that will provide the ultimate validation of cryptos as a serious asset class.
According to industry analysts, Bitcoin is already eating into gold and is expected to replace most of the gold exchange-traded funds in two to three years. Many bulls also predict that Bitcoin will grow into the primary asset index in the Western world and is tipped to overtake the SPDR S&P 500 ETF Trust.
For Bitcoin to grow to those heights in under a few years, we will need more than crypto futures ETFs. We will need a spot ETF for the cryptocurrency. While Bitcoin spot ETFs are already in other global markets, none is yet to be approved in the U.S. although the country recently crossed an important milestone with the approval of two Bitcoin futures ETFs. With these on the roll, it is expected that it is, logically, only a matter of time before we begin seeing spot ETFs, the long-awaited Holy Grail in the crypto trade.
If the U.S. ETFs begin to roll, we are going to see billions and even trillions of dollars flowing into these funds. It will be a pivotal step in the mainstreaming of cryptocurrencies. The cryptos, will for the first time, stand on the same pedestal as the other conventional assets.
Spot ETFs hold underlying Bitcoin and will provide conservative investors with an institutional vehicle for exposure to the world of cryptocurrencies.
In October 2021, we saw the back-on-back launches of two funds that track Bitcoin futures. These are the ProShares Bitcoin Strategy ETF (BITO) and Valkyrie’s Bitcoin Strategy ETF (BITO). BITO debuted to a vigorous reception and amassed over $1 billion in assets in under 48 hours. The launch of these two Bitcoin ETFs generated a huge buzz and cryptomania driving the Bitcoin price to its second-highest peak this year.
Compared to spot ETFs for cryptos, futures-based ETFs are a somewhat inferior offering. But for investors looking for an institutional ramp on into the world of cryptocurrencies, they are currently the best they have. Many investors will be keeping an eye on a possible launch of a spot ETF in 2022. ETFs are a safer investment option, however, as they plug into an existing security structure as well pre-existing collateral packages and prime brokerages that many investors are comfortable with.
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Many analysts contend that spot Bitcoin ETFs will be the Holy Grail and will quickly attract hundreds of billions of dollars within a very short time.
Spot-Bitcoin ETFs aren’t a novelty. There have been unsuccessful attempts to establish these for the past few years and they already trade in other countries across the globe such as Canada. Australia, too, has approved its first spot-Bitcoin ETF after a very long wait. In the U.S., the SEC is treading carefully and approvals aren’t forthcoming yet. But there are encouraging signs and reasons for optimism, especially in light of the recent launch of Bitcoin futures ETFs in the U.S.
The October ETF launch in the US has triggered an avalanche of new filings with the SEC for offshoots or similar ETF products with many of these looking to capitalize on the momentum generated by the successful ProShares debut. Many industry analysts are anticipating that such applications, possibly in their hundreds, are going to flood in the coming months.
However, optimism should be tempered by the hesitancy of U.S. regulators who, until now, have balked from greenlighting a physically-backed crypto exchange-traded fund product for various reasons.