Today, the SEC will announce its decision on possible approvals of spot Bitcoin ETFs, the news that the entire crypto community is eagerly awaiting.
The potential approval and listing of Bitcoin spot ETFs today, January 10, has been shaking up the crypto market.
As experts point out, there is a high probability that the SEC will approve several Bitcoin exchange-traded funds at the same time, a fact that would demonstrate the growth and maturity of the market and would give greater legitimacy to Bitcoin as an investment asset. Hence, the importance of approving this type of financial instrument.
Bitcoin Spot ETF Could drastically changing the investment landscape in the cryptocurrency industry, opening the doors to institutional investors to gain exposure to Bitcoin in a direct and regulated manner.
This financial instrument, which could be approved today, will also give Bitcoin greater legitimacy as an emerging investment asset class and as a potential long-term store of value.
What is Bitcoin ETF?
Exchange-traded funds or ETFs are a powerful tool in the financial markets that facilitate access to an asset, or set of assets, through shares that can be traded on stock exchanges.
In the case of Bitcoin ETFs, these are financial instruments that offer a regulated structure, through which Traditional investors can gain exposure to the world's largest cryptocurrency, to invest in it, without the need to buy, store or manage the cryptocurrency directly.
Bitcoin ETF providers are the ones that will be in charge of buying and holding bitcoins in funds safely, offering investors shares that represent these funds and that can be traded on exchanges. All this, in order to allow and facilitate exposure to the crypto market.
The advantages and risks of spot ETFs
Like any investment instrument, spot ETFs offer investors a series of advantages and risks that must be considered if they wish to participate in one of these financial products.
The SEC recently warned investors about Don't get carried away by FOMO (fear of missing out) related to the cryptocurrency market. The agency stressed the importance of studying the investment opportunities and risks posed by digital assets, which are not suitable for all investors, according to the regulator.
Regarding the advantages of Bitcoin ETFs, the following can be mentioned:
- Simplicity of access to Bitcoin: Spot ETFs provide an easier and more accessible financial instrument for investors who are interested in cryptocurrency but are not familiar with the crypto space. Through ETFs, these investors will be able to gain exposure and invest in bitcoins, without the need to purchase, manage or store BTC directly. Also, for many investors, ETFs provide a more streamlined user experience than interacting with cryptocurrency exchanges.
- Investment diversification: Through spot ETFs, investors can add BTC to their portfolios, diversifying their portfolios and investments with an asset that behaves differently than traditional assets.
- Regulated and secure environment: As a regulated investment instrument, Bitcoin ETFs can help companies gain exposure to the cryptocurrency without affecting compliance. In fact, experts have pointed out that the approval of these financial instruments in the US market will motivate companies and institutional investors to move part of their capital into the cryptocurrency market.
- Ease of operation: As mentioned above, investors investing in Bitcoin through an ETF do not need to buy, manage or store bitcoins in wallets, the interface of which can be complicated for some. In ETFs, it is the providers of these instruments that are responsible for the safe storage and custody of the underlying assets, which in this case, is Bitcoin.
As for the disadvantages or risks of spot ETFs, the following can be listed:
- Ownership of assets: Through ETFs, investors do not maintain custody of the fund's underlying assets and therefore do not own the bitcoins.
- Volatility: Spot ETFs create shares that are linked to the price of Bitcoin on the market, and as is well known, volatility is one of the main characteristics of this cryptocurrency and digital assets. However, it is also worth remembering that Bitcoin's historical volatility has decreased over time, as the crypto market has grown and gained greater maturity.
- Management cost: ETF providers charge a commission fee to investors for managing the assets. This, for some investors, is a disadvantage. However, asset managers, seeking SEC approval to launch a Bitcoin spot ETF, have been reducing their fees as much as possible to attract more investors in anticipation of the imminent approval of these financial instruments. The latest to reduce its ETF fees has been BlackRock, which set them at 25 basis points on the fund's net asset value and with a promotional fee of 12 basis points, which applies to the first $5.000 billion traded in the first 12 months after the ETF is listed.
Why is it important for Bitcoin ETFs to be approved?
The approval of these financial instruments in the US market would give Bitcoin Greater legitimacy as an investment asset, by being able to trade cryptocurrency on regulated markets that are governed by current securities laws and regulations.
While the SEC has been cautious for years about approving these investment instruments, it now appears to have a more open approach to Bitcoin investing, which has raised expectations for a possible approval. If the SEC approves Bitcoin ETFs, it will be Setting a precedent for regulated investment in cryptocurrencies in the United States.
Benjamin Dean, head of digital assets at WisdomTree, said that the approval of Bitcoin spot ETFs “could paving the way for increased demand for Bitcoin by new institutional investors.”
The price of Bitcoin, which is trading at around $45.300 at the time of writing, could also be boosted by the approval of these regulated investment instruments in the country.
Continue reading: Stuart Kirk of Financial Times plans to invest in Bitcoin ETFs
