WHAT IS AN ETF?
The term ETF means Exchange Traded Fund; it is basically a type of trading instrument or a type of security, that mirrors the price of an actual commodity, company, or asset and can be traded on an exchange.
BITCOIN SPOT ETF
This is an index that will allow Traditional investors to buy, sell and hold Bitcoin, without actually taking the risk to own bitcoin in a bitcoin wallet.
What’s peculiar with spot ETFs is that for a company to offer a spot ETF, they must have an equivalent in real asset, this means that when a customer buys an ETF, they are making a direct investment into that asset on a 1:1 basis.
HOW DOES THIS WORK
The company acts as a custodian, they hold a certain amount of bitcoin in a secure wallet on behalf of their clients. Then offer their clients an index that mirrors the price of Bitcoin while charging them a fee for their trading activities.
THE BENEFITS OF SPOT BITCOIN ETF FOR TRADITIONAL INVESTORS
- Regulation: Most traditional investors prefer to trade an asset that is regulated, the spot Bitcoin ETF, is a way they can trade Bitcoin in a regulated market and eliminate responsibility of keeping their Bitcoin secure in a wallet.
- Security: They rely on the company offering the spot Bitcoin ETF to secure their asset as security is one of the biggest challenges of blockchain
WHY IS THIS SPOT BITCOIN ETF APPROVAL A BIG DEAL FOR THE GENERAL CRYPTO COMMUNITY
- Exposure to new market; The stock market in the United states is worth over $40 Trillion, when listed as a tradable fund in this market, we believe that a lot of money will flow into Bitcoin as investors in this market can easily access Bitcoin safely. This guarantees a new type of demand, and liquidity coming into Bitcoin. As supply remains constant, this will trigger upward price movement.
- A perfect coincidence with the Bitcoin halving year; This year, we believe the 4th Bitcoin cycle will begin after the Bitcoin halving that will take place in April, 2024. Bitcoin halving is usually a bullish event in the crypto market, with this ETF approval expected to be in the same period, we believe it will be a super-bullish year for the entire crypto ecosystem if it gets approved
- The caliber of companies applying for it; The biggest Asset management company, Blackrock, Fidelity, Ark Invest, Wisdom Tree, Invesco & Galaxy, Grayscale and so on, are big names when it comes to Asset Management with over $20 Trillion combined Assets under Management we believe that Bitcoin will gain mainstream acceptance if this is approved
Some of the top spot Bitcoin ETF applicants and Their Assets Under management
BLACKROCK: $10 TRILLION
FIDELITY: $4.8 TRILLION
INVESCO: $1.6 TRILLION
FRANKLIN TEMPLETON: $1.4 TRILLION
WISDOM TREE: $94 BILLION
VANECK: $80 BILLION
GLOBAL X: $48 BILLION
ARK INVEST: $15 BILLION
GRAYSCALE: $14 BILLION
Will SEC approve the spot Bitcoin ETF Filings?
This the biggest question among many traders as at the time of writing this. The SEC has set January, 10th, 2024 as a key date to decide what to do with the applications, while many speculators are restless looking to stack up more Bitcoin, in case the applications are approved or offload their Bitcoin should the SEC rejects the applications.
The SEC thoroughly reviews ETF applications, considering factors such as investor protection, market manipulation, and the overall stability of the market.
Past applications for Bitcoin ETFs have faced rejections or delays due to concerns about market manipulation and insufficient investor protection measures.
If you are looking to trade, be careful, as there are many ways to manipulate the market in periods of high anticipation like ‘buy the rumor, and sell the fact’. It is therefore advised to stick to standard investment practices like ‘Dollar cost averaging’ and proper risk management practices.
How this spot Bitcoin ETF differs from the Futures Bitcoin ETF
Prior to this time, Bitcoin Futures ETFs have been approved but why the news of spot Bitcoin ETF is causing high volatility is because, unlike the Futures Bitcoin ETF, Spot Bitcoin ETFs require that the proponents own the actual amount of Bitcoin they want to offer the market in a secure storage. This will heavily impact the demand and in turn the price of Bitcoin positively.
In summary, spot Bitcoin ETF is a great way for traditional investors to get on board into the crypto market through a safer regulated stock market. However, when you understand the true purpose of cryptocurrency, nothing beats self-custody, as long as you can keep your assets safe.
The market is excited as it expects that an approval would mean a hike in Bitcoin’s price.
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