ETF stands for Exchange-Traded Fund, which refers to a type of investment fund that is traded on an exchange, similar to stocks. Simply put, ETFs are the exchange-traded versions of traditional investment funds.

Why is it important?

ETFs, traded at spot prices like stocks, can have one or multiple underlying assets. The fund replicates the returns of these assets and offers them to investors. ETFs are widely popular globally, with the total assets under management of the top 10 ETFs exceeding 1 trillion dollars.

If a Bitcoin ETF is approved, Bitcoin will gain a share from this trillion-dollar market. It is believed that this will have a significant impact on the price.

The first ETF for gold was approved in March 2013, and following its approval, the price of gold increased by over 300%. There is an expectation that an ETF could similarly impact Bitcoin.

What does a Bitcoin ETF provide?

On the other hand, Bitcoin and cryptocurrencies are often defined as risky assets by many investors. Apart from the lack of regulatory clarity, those who want to avoid the technical complexities need to have trust in cryptocurrency exchanges at some point. Considering the frequent problems associated with cryptocurrency exchanges, investors understandably want to protect themselves. In this regard, a Bitcoin ETF investor does not need to concern themselves with whether they own the private key to their wallet.

Additionally, ETFs provide investors with diversification. For example, an investor who purchases a Bitcoin ETF can simultaneously invest in Amazon's stock. This is entirely optional and facilitates portfolio diversification.

Disadvantages of ETFs

To acquire these funds, investors need to pay management fees. These management fees, similar to the concept of "gas fees" in cryptocurrencies, can be significant and result in high costs. The ETF purchased by an investor is not a cryptocurrency itself. Therefore, the inability to trade with other cryptocurrencies in Bitcoin terms can also be seen as a disadvantage.

Bitcoin ETF development and applications

Bitcoin ETFs, with a history dating back to 2013, were initially proposed by the Winklevoss twins to the U.S. Securities and Exchange Commission (SEC). However, neither the Winklevoss proposal nor subsequent ETF applications brought before the SEC were approved. The first Bitcoin ETF listing in the world occurred in September 2020 through a collaboration between a Bermuda-based asset management company and NASDAQ.

In the U.S., as of April 2021, there have been at least seven Bitcoin ETF applications from reputable and high-profile firms such as Fidelity, VanEck, SkyBridge Capital, and Bitwise.

While the SEC has not yet approved any spot Bitcoin ETFs, it has given approval to some Bitcoin futures ETFs. Nevertheless, the market is still eagerly anticipating the approval of a spot ETF.

Bitcoin ETF approval process: It can take up to 240 days

In the U.S., ETFs must go through the approval process of the SEC. The SEC can extend the review period for a Bitcoin ETF application for up to 240 days before approving or rejecting it.