What is a Bitcoin ETF - and why are people excited about it?

The crypto world has been buzzing with excitement over the past year, as whispers about a U.S. Spot Bitcoin ETF grew into a full-blown tidal wave of speculation and debate. Both crypto enthusiasts and traditional finance experts have been eagerly dissecting what the approval of this long-awaited milestone could mean for the future of digital currency. Now, that moment has finally arrived.

The background

The first U.S. Bitcoin Exchange Traded Fund (ETF) launched on the New York Stock Exchange in October 2021, making it easier than ever for regular investors to jump into the exciting world of cryptocurrency. On its launch day, the ProShares Bitcoin Strategy ETF (BITO) saw a whopping 12 million shares traded and pushed the price of Bitcoin above $63,000 for the first time since April that year.

But that's not all - This significant development has not only taken place in the United States but also in various countries worldwide. Canada, Germany, Jersey, Switzerland, and more have launched their own Bitcoin ETFs and the introduction of these ETFs has opened up opportunities for a whole new group of investors who may have previously been hesitant or unsure about diving into Bitcoin.  

So, what's so great about ETFs?

Well, they give you access to a basket of assets, reducing the risk of buying individual stocks. Plus, their low management fees make them an affordable option for everyday investors. And since ETFs are traded on the stock market, you can buy and sell them at a low cost through your trusted brokerage platform whenever you want.

Compared to the often volatile and unregulated crypto markets, ETFs provide a higher level of confidence and security. With the oversight of traditional exchanges and regulated platforms, investors can engage with Bitcoin using their trusted brokerage platform compared to buying directly from a crypto platform. This is particularly significant for institutions like pension funds, which have a responsibility to invest cautiously on behalf of our pensions. Now, they too can explore crypto in a safer way.

It's worth noting that the bitcoin ETFs currently available don't grant investors ownership of the actual Bitcoin. Instead, they are based on bitcoin futures contracts, which are financial derivatives products - agreements to purchase Bitcoin at a predetermined price in the future.

Exciting developments underway

But hold on tight, exciting developments are on the horizon, because the next phase has arrived with the U.S. Securities Exchange Commission’s approval of Spot BTC ETFs in January 2024. 

Spot bitcoin ETFs give buyers access to the actual cryptocurrency market price, accompanied by the regulated protections of ETFs. This advancement will undoubtedly attract even more investors who seek the benefits and security of regulated ETFs while getting exposure to bitcoin's price movements.

With Bitcoin's current market value surpassing $800 billion, the availability of more avenues to access Bitcoin will undoubtedly accelerate its adoption and increase its value. While crypto purists may argue that traditional finance entering the crypto world goes against the decentralized vision of blockchain, it does lend to the growing legitimacy of Bitcoin and reinforces its position as a future global currency.

First published: January 2024