Bitcoin has seen a massive price surge recently, fueled by the buzz surrounding the prospect of a Bitcoin ETF. In a matter of days, it surpassed the $30,000 mark after rising nearly 25%.
However, that was not to be the case. The application was rejected and the price fell back below $30,000, putting hopes of sparking a bull run on hold once again.
So, why the excitement? What exactly is a Bitcoin ETF? And what are the chances of us seeing one?
As for the last question, most experts agree that it is highly likely that this will happen in the near future. As of this writing, one application has been resubmitted.
A Bitcoin ETF represents a major milestone in cryptocurrency adoption for the reasons outlined below.
what happened
In June, BlackRock unexpectedly filed for its own Bitcoin ETF.
The SEC has rejected a variety of proposals in recent years, but this particular filing has caught people's attention.
Comments coming from BlackRock, the world’s largest asset manager — not to mention during the crypto winter and following the SEC’s lawsuit against BlackRock’s ETF custody partner Coinbase — naturally sparked speculation that BlackRock “might know something.”
This immediately triggered a rush among other institutional players at BlackRock to submit their own applications.
Why the rush? The first approved Bitcoin ETF is expected to have a significant first-mover advantage, and no one wants to be left out. However, all applications have been rejected.
The SEC told Nasdaq and the Chicago Board Options Exchange, the exchanges that file for several asset managers including BlackRock, that the filings were not clear and comprehensive enough.
However, this is far from the end. Asset managers can update their applications and re-file, which BlackRock and others have done so far.
All of this goes to show what a Bitcoin ETF would mean for its providers.
But why is the market so excited? To understand the hot topic, here’s a quick explanation of ETFs.
What is an ETF
ETF stands for “Exchange Traded Fund.” Unlike cryptocurrencies, ETFs are traded on traditional stock exchanges like any stock.
Therefore, a Bitcoin ETF will be a game changer, bringing the traditional financial world closer through its emerging decentralized alternative, providing investment opportunities in the controversial digital asset class in a traditional context.
ETFs were launched in 1993 and gained popularity as a way for ordinary retail investors to invest in a basket of assets at one time.
For example, if you wanted to invest in the 500 largest companies in the United States in one go, you could buy shares of the S&P 500 ETF, which tracks the value of an index of those company stocks.
So, in the case of this ETF, the fund contains stocks of these 500 companies.
But ETFs can contain many other types of investments, including commodities, bonds, or a mix of investment types.
An ETF may own hundreds or thousands of stocks across different industries, or it may be in just one specific industry or sector.
Why Create a Bitcoin ETF
The proposed Bitcoin ETF would contain only Bitcoin and closely track its price. So why buy ETF shares instead of actual Bitcoin ( BTC )?
For most retail investors accustomed to the traditional financial system, cryptocurrencies still present a new and risky prospect.
There are still regulatory issues, for example, and the unwelcome bad press that centralized exchanges have received — not to mention the prospect of having to learn about things like digital wallets, taking on self-custody responsibilities and declaring any capital gains taxes.
A Bitcoin ETF offers a convenient solution that works in much the same way as any other ETF.
Investors will buy shares of the ETF through whatever brokerage firm they might already buy stocks from and trade them just like they would Amazon or Apple.
This is attractive not only to retail investors, but also to institutional investors - the big investors.
How a Bitcoin ETF Works
A Bitcoin ETF would be managed by a company that buys and holds actual Bitcoin, with its price pegged to the Bitcoin held in the fund.
A Bitcoin ETF listed on a traditional stock exchange would also offer other trading opportunities, such as short selling, allowing investors to go short on Bitcoin.
Unlike ETFs that track stocks, there will be no dividends, of course.
But as with other ETFs (rather than trading Bitcoin on a cryptocurrency exchange), investors are responsible for paying fees to the company offering the ETF to cover the custody and management fees for purchasing and storing the ETF's underlying Bitcoin.
Why excited
A Bitcoin ETF is expected to bring a new level of mainstream credibility and acceptance of Bitcoin investing, further enhancing the overall credibility and acceptance of cryptocurrencies.
Cryptocurrencies remain an unknown option for most conservative investors, both a risky bet and a curious novelty.
The SEC’s approval of a Bitcoin ETF would represent new mainstream market recognition and, more importantly, make it easier for institutional investors to build positions.
In other words, Wall Street meets Bitcoin.
This will greatly increase the price and credibility of Bitcoin and take an important step towards its integration into traditional finance.
When examining the logic behind the SEC’s decision, the type of oversight it requires, and how regulators might allow similar Bitcoin investment vehicles, experts believe the likelihood of a Bitcoin ETF being approved is now fairly high.
