Bitcoin is poised to come out swinging in the TradFi arena in January if the SEC approves several pending applications for Bitcoin spot ETFs. Blackrock, Grayscale, other traditional investment firms like Fidelity and Franklin Templeton, and crypto-native funds like Bitwise Asset Management Inc. are all in the race for a spot in Bitcoin ETF.
This move signals a potential opening of the crypto market to more institutional investors. Until now, the SEC permitted ETH and BTC futures ETFs but has not approved a crypto spot ETF.
In this post, we’ll look at recent events regarding the Bitcoin ETF Approval and a prediction that a successful Blackrock spot ETF will destroy Bitcoin.
Also, if you are unclear on the difference between a “spot” and “futures” ETF, join the club. Many other crypto investors have questions. We’ll go over some basics about spot vs. futures EFTs.
Updates on SEC Bitcoin ETF Approval Deadline
According to ETF.com and other linked sources, here is a rundown of recent movements regarding crypto EFTS and Blackrock’s spot bitcoin ETF application:
- Seed Funding: BlackRock Inc., the world’s largest asset manager, received a minimum of $100,000 seed funding from an unidentified investor, as reported in their December 4 S-1 filing with the SEC. This investment was for the potential spot Bitcoin ETF product, with the investor receiving 4,000 shares at $25 per share.
- SEC’s Position: Although the SEC currently permits ETFs that track Bitcoin and Ethereum futures contracts, it has consistently blocked ETFs tracking physically-backed bitcoin. However, following a lawsuit loss to Grayscale Investments Inc. in late August, the SEC is collaborating with 13 firms, including BlackRock, to advance their applications for a spot Bitcoin ETF.
- Market Developments: The anticipation for approving a spot Bitcoin ETF has been high among cryptocurrency investors, with BTC’s price recently reaching nearly $44,800. This surge represents a 4.6% increase in the past 24 hours.
- Cash Redemptions: As of December 19, 2023, BlackRock has updated its proposed spot bitcoin exchange-traded fund (ETF) to allow cash redemptions. This update aligns better with the model preferred by the Securities and Exchange Commission (SEC). The updated filing also introduced the potential ETF’s ticker, IBIT.
- Fiat-based Shares: BlackRock has also made structural changes to its application to launch a spot Bitcoin ETF in the U.S. According to the updated filing, Wall Street banks can now create new shares based on fiat, not just cryptocurrencies.
- BlackRock’s Filing Updates: BlackRock’s latest filing includes updates and risk disclosures related to ETF pricing, security, and regulatory compliance.
- Spot ETH will have to wait: The SEC has pushed back a decision on several Ethereum EFTs until May.
- Approval Odds: Bloomberg analysts have estimated a 90% chance of an early January approval for the spot Bitcoin ETF.
SEC Doubts About Bitcoin Spot ETFs
The SEC has hesitated to approve spot ETFs due to concerns about the potential for market manipulation, volatility, and inadequate regulatory oversight in the underlying spot markets, particularly given that many cryptocurrencies trade on unregulated exchanges. These concerns have led the SEC to favor futures ETFs based on futures contracts traded on regulated exchanges, providing a layer of oversight deemed necessary for investor protection.
Spot vs. Futures ETFS
Some crypto watchers and Wall Street insiders believe that SEC approval will spike a massive bull market for crypto in 2024. If so, why aren’t we seeing a massive uptick in purchases of BTC and ETH among individual investors?
For one thing, the mainstream isn’t really paying attention. Most financial news in 2023 covered inflation and recession threats. And, let’s face it, crypto’s track record with fraud and high-profile founder flameouts doesn’t help mainstream investors feel confident in taking a significant stake in crypto.
Another factor is that mainstream investors may need to understand ETFs better. Even more experienced investors may have questions. Do you know the difference between a spot and futures ETFs? If not, let’s go over the basics.
What is an Exchange Traded Fund?
An ETF, or Exchange-Traded Fund, is an investment fund that tracks an index, commodity, bonds, or a basket of assets like an index fund but trades like a stock on an exchange, offering diversification, lower fees, and greater flexibility than traditional mutual funds.
What is the difference between spot ETFs and Futures ETFs?
Spot ETFs and futures ETFs differ fundamentally in their underlying assets. A spot ETF directly tracks the current market price of the asset it represents, such as BTC, meaning it holds the actual asset.
In contrast, a futures ETF tracks futures contracts of the asset, which are agreements to buy or sell the asset at a future date at a predetermined price without holding the actual asset.
The choice between spot and futures ETFs ultimately depends on individual investment strategies and attitudes toward market risk and regulatory security.
Advantages of Spot ETFs
Investors who favor spot ETFs typically seek direct exposure to the actual asset, like bitcoin, believing in its long-term value. Spot ETFs reflect the asset’s current market price and are straightforward regarding their holdings and valuation. This direct exposure is attractive to investors who want to invest in the asset itself without the complexities of owning it directly, such as dealing with wallets and keys in the case of cryptocurrencies.
Advantages of Futures ETFs
On the other hand, futures ETFs are preferred by investors looking for exposure to the price movements of an asset without directly holding it. Futures ETFs can be more appealing for short-term trading strategies and hedging because they get their basis from futures contracts. These ETFs are more likely to have an additional layer of regulation and standardization as we trade the futures contracts on regulated exchanges. This prospect can reassure investors concerned about the regulatory uncertainties and potential market manipulation in the underlying spot markets.
Will a Blackrock Bitcoin Spot ETF Kill Bitcoin?
Forbes Senior Contributor Billy Bombrough’s article quotes a recent blog post with an attention-grabbing (i.e., clickbait) headline, “BlackRock ‘Will Completely Destroy Bitcoin’—Shock Price Warning As Leak Reveals Huge Spot ETF Date Update.”
“If ETFs managed by [traditional finance] asset managers are too successful, they will completely destroy bitcoin,” wrote Arthur Hayes, Co-Founder of 100x, a trading and crypto enthusiast whose blog focuses on helping spread financial literacy and educate investors.
Hayes argued that BlackRock aims to accumulate as much bitcoin as possible. If they are successful, it will decrease bitcoin transactions to such a point that miners won’t make enough money to continue supporting the blockchain, go out of business, and essentially kill Bitcoin.
While this may be a correct hypothesis, it may not be too.
For starters, we still have the question – why would BlackRock want to destroy Bitcoin in the first place? The firm is (maybe) the third largest owner of BTC and has a multi-million dollar stake in mining companies. If you want a deeper dive, the answer may lie in this highly detailed post.
Moving Ahead with the Bitcoin EFT Approval
While no one knows what will happen in January precisely, most experts agree that an SEC approval for Blackrock’s Bitcoin Spot ETF is likely. And the approval will set off renewed activity around Bitcoin and Ethereum in 2024.
In the meantime, regulatory action on crypto is increasing as well. We may look back on 2024 as the beginning of crypto’s integration into mainstream finance.
Cryptocurrency as an asset is here to stay. But does the price of integration into regulated markets go too far, gutting crypto of its innate benefits, such as anonymity and simplified P2P transactions? Will Satoshi even recognize Bitcoin in another five years?
What do you think?
One thing is sure: if you invest in bitcoin or other cryptocurrencies, you must plan for tax time. ZenLedger can help you stay organized. The platform aggregates transactions across exchanges, computes your capital gain or loss, and generates the necessary paperwork. In addition, you can identify opportunities to reduce your tax burden using strategies like tax-loss harvesting.
This material has been prepared for informational purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.”