Bitcoin ETF Decision Looms: What it Means for Investors and the Future of Cryptocurrency (2024)

FAQs

What does Bitcoin ETF approval mean for crypto? ›

On 10 January, the US Securities and Exchange Commission (SEC) approved spot exchange-traded funds (ETFs) for Bitcoin. For disciples, the formal approval confirms that Bitcoin investments are safe and the preceding rally is proof of an unstoppable triumph.

If long-term price performance is your only investment goal, then the new Bitcoin ETFs make a lot of sense. However, you could prefer direct-asset ownership of Bitcoin if you are concerned about the regulatory or legal aspects of crypto.

While the new spot bitcoin ETFs are designed to track the bitcoin price directly, they do not impact it in the same way. Buying a share of an ETF has no real-time impact on bitcoin's price through direct means. In fact, the bitcoin represented by the share is not even purchased until the next trading day.

Indeed, in the days after the SEC's approval, over $2 billion flowed into bitcoin ETFs. But bitcoin prices themselves sunk. Immediately afterward, the crypto shot up by about $3,000 to a price of $48,600; since then, it has dropped down to $41,000 — its lowest price since early December.

These shares are priced to reflect the current spot price of bitcoin and can be traded on traditional stock exchanges. Spot bitcoin ETFs make it easier for retail investors and traders to buy and sell an asset tied to the current value of bitcoin without needing to hold bitcoin itself.

Key Points. There are several benefits to owning the actual Bitcoin by purchasing through a cryptocurrency exchange. In some situations, the ETFs offer investors all they need. The decision between the two will come down to personal preference and technological savvy.

Bitcoin ETF investors merely get exposure to the price of Bitcoin. They never own the asset. ETF participants don't benefit from what Bitcoin stands for in the first place, which is to allow anyone to experience financial ownership and sovereignty.

Counterparty Risk vs Bitcoin Self-Custody:

Unlike self-custody, where individuals control their own bitcoin, ETFs involve trusting a third party to manage the investment, which in turn usually trusts a custodian to hold the bitcoin for them.

However, investing in crypto ETFs is not without risk. The market is volatile, with prices fluctuating significantly in short periods. In addition, the regulatory landscape for crypto is evolving, and changes in regulations will undoubtedly impact the performance and availability of these ETFs.

What are the negative effects of bitcoin ETF? ›

Risks: Despite their benefits, Bitcoin ETFs also come with risks. These include exposure to market volatility, potential market manipulation, higher fee structures, indirect ownership, and tracking error.

Why did Bitcoin's price fall after the approval of Bitcoin ETFs? The price fell due to factors like profit-taking, market expectations not meeting reality, regulatory warnings, and initial confusion due to misinformation about the approvals.

ProShares Bitcoin Strategy ETF (BITO). ProShares Short Bitcoin Strategy ETF (BITI). Valkyrie Bitcoin and Ether Strategy ETF (BTF).

He said that the current demand has been largely coming from retail investors, hedge funds and independent financial advisors. Bitwise's Bitcoin Fund (BITB) is one of four spot bitcoin ETFs that have crossed $1 billion in AUM since launch.

The 15 biggest Bitcoin (BTC) ETFs worldwide as of April 15, 2024. Grayscale's Bitcoin ETF was nearly the same value as iShares Bitcoin Trust or other ETFs from across the world. This is according to a custom ranking on exchange trade funds filed in different countries.

Possible Reasons for the Price Decline

Profit-Taking: The anticipation of ETF approvals likely fueled a run-up in Bitcoin's price. Once the approval was confirmed, investors may have decided to lock in profits, leading to a sell-off.

The Securities and Exchange Commission (SEC) rejected spot bitcoin ETFs for more than a decade, hoping to protect investors from market manipulation. But the SEC was forced to approve them last month after Grayscale Investments won a court challenge.

Grayscale Bitcoin Trust ETF (GBTC)

GBTC started out as a closed-ended trust but was converted into an ETF following SEC approval. As the oldest fund in this niche, GBTC holds more than $23 billion in assets under management, or AUM.