Bitcoin ETFs or exchange-traded funds are financial instruments that track a bitcoin benchmark, they will be listed on Nasdaq, NYSE and the CBOE
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Bitcoin ETF, which tracks the price of bitcoin, has been recently approved by the US Securities and Exchange Commission (SEC). The move is being touted game-changer for the cryptocurrency industry that has been trying for more than a decade to launch such a product. The US SEC approved 11 spot bitcoin ETFs, including BlackRock’s iShares Bitcoin Trust, Grayscale Bitcoin Trust, and ARK 21Shares Bitcoin ETF, among others.
Here’s all you need to know about Bitcoin ETF and how you can invest.
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What Are Bitcoin ETFs?
Bitcoin ETFs or exchange-traded funds are financial instruments that track a bitcoin benchmark. Bitcoin ETFs value changes in line with the changes in bitcoin prices. Their assets will comprise physical bitcoin purchased from crypto exchanges and held via custodians like Coinbase Global.
The Bitcoin ETFs will be listed on Nasdaq, NYSE and the CBOE.
On the first day of trading on January 12, $4.6 billion worth of shares changed hands across all the products, according to LSEG data.
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Bitcoin ETFs Vs Bitcoin
Yes. A spot bitcoin ETF allows investors to gain exposure to the price of bitcoin without the complications and risks of owning bitcoin directly. Those include setting up crypto wallets and accounts with crypto exchanges, some of which have poor cyber security records and are prone to hacks.
The industry has also experienced a string of bankruptcies and scandals, including the implosion of crypto exchange FTX, whose founder Sam Bankman-Fried was found guilty of fraud.
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Other exchanges have been accused of flouting U.S. securities laws, while Binance, the world’s largest crypto exchange, recently pleaded guilty to breaking US anti-money laundering laws. All this continues to make many investors wary.
In contrast, ETFs are listed on tightly-regulated stock exchanges and are therefore accessible through retail investors’ existing brokerage accounts, which are also closely supervised.
The ETF structure also boosts the accessibility of bitcoin for institutional investors, some of whom are barred from investing directly in alternative assets.
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Bitcoin ETFs: Can Indians Invest?
Under the RBI Liberalised Remittances Scheme, Indian individuals are allowed to send a maximum of $250,000 to a foreign country in a year.
Viram Shah, chief executive officer of Vested Finance, said that for Indian investors, the Bitcoin ETF will provide an opportunity to include crypto in their portfolio via the liberalised remittance scheme (LRS) route.
He also said an Indian investor taking exposure on Bitcoin ETF will get easy exposure through regulated entities without worrying about the storage of the cryptocurrency.
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Issuers plan to charge fees ranging from 0.20 per cent to 0.8 per cent, well below the broader ETF market average.
Safeguards To Price Manipulations in Bitcoin ETFs
In order to address manipulation concerns, Nasdaq and CBOE have created a market surveillance mechanism with Coinbase, the largest US cryptocurrency exchange.
Bitcoin ETFs: History
Multiple asset managers have applied for bitcoin ETFs since 2013, but the SEC rejected them on the grounds they would be vulnerable to market manipulation. In August, however, a court found the SEC was wrong to reject Grayscale Investments’ bitcoin ETF application, forcing the agency to rethink its stance.
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The SEC in 2021 approved bitcoin futures ETF, which track agreements to buy or sell bitcoin at a pre-agreed price. But those products don’t track price movements precisely, and the cost of rolling over futures contracts can eat into returns, making them less desirable for many investors.
On Wednesday, SEC approved applications from ARK Investments, BlackRock and Fidelity, among others.
Bitcoin ETF Approval by the US SEC: What Does It Mean?
For the crypto industry, a spot bitcoin ETF is a big win, boosting the legitimacy of the cryptocurrency industry and pushing bitcoin further into the mainstream.
It also comes amid a broader tug-of-war between the crypto industry and SEC, which has been cracking down on the sector. When it comes to this particular battle, the industry can claim victory.
