A financial mechanism that gives ordinary investors exposure to fluctuations in the price of bitcoin within their standard brokerage accounts is a spot bitcoin exchange-traded fund (ETF). A spot bitcoin ETF, instead of a bitcoin futures ETF, invests in actual bitcoins as the underlying asset rather than in derivatives based on their pricing.
Spot bitcoin exchange-traded funds (ETFs) provide a regulated and easily accessible means for regular investors to purchase digital currency. Though they are mitigated by the absence of time exchange-related costs associated with directly buying and holding bitcoins, expenditures such as management fees and brokerage commissions still exist.
How Spot Bitcoin ETFs Work?
Spot bitcoin ETFs employ registered custodians to store bitcoins safely in a digital vault.
This type of ETF aims to replicate Bitcoin’s value on the cryptocurrency market. The ETF purchases bitcoins from other holders or through approved cryptocurrency exchanges to get started. After that, the tokens are kept in a digital wallet, which frequently uses multiple security layers, such as offline or cold storage, to lower the risk of hacking.
Afterward, the ETF issues shares in proportion to the total amount of bitcoins it owns. The price of an ETF share should correspond to the current cryptocurrency market price. And the general public can trade shares on conventional stock markets. As a result, the ETF’s shares try to mirror the price of bitcoins closely, and it periodically adjusts its holdings by purchasing or disposing of tokens.
Authorized participants handle both the creation and redemption processes (APs). Usually, big financial organizations issue or redeem ETF shares in response to market demand. To bring the price of ETF shares into line with the cost of bitcoins. The APs produce or save ETF shares in big blocks. Effectively arbitrages the difference if the ETF shares are trading at a premium or discount to the actual bitcoin price.
Spot Bitcoin ETFs vs. Other Bitcoin ETFs
The way that spot bitcoin ETFs and derivatives-based bitcoin ETFs are designed. And the degree of exposure they provide to fluctuations in bitcoin price is different. Meanwhile, derivatives-based bitcoin ETFs utilize financial instruments like futures contracts to mirror the bitcoin price. Spot bitcoin ETFs store bitcoins directly.
Thus, spot bitcoin ETFs hold bitcoins directly. Investors will find spot bitcoin ETFs more straightforward to understand because of this exposure, which is more intuitive. Because each share of the ETF represents a certain quantity of bitcoins held, spot bitcoin ETFs can thus be more transparent.
Bitcoin to $1M post-ETF approval? BTC price predictions diverge wildly
Excitement for Bitcoin ETFs is pervasive, but the short-term outlook for BTC prices is deteriorating. Even though there is growing enthusiasm about a spot exchange-traded fund (ETF), Bitcoin might still need to recover $40,000 in value. Crypto market participants are beginning to reevaluate how optimistic the ETF narrative is about the direction of Bitcoin’s price action in light of recent analysis.
Trader: “Not sure” BTC price will reach $42,000
The regulatory bombshell case of the United States v. Binance, involving a $4.3 billion punishment and Changpeng “CZ” Zhao’s ouster as CEO, is still settling in.
On the announcement, bitcoin fell to one-week lows but quickly rose to over 18-month highs the next day. Simultaneously, Observers proposed that the enforcement action was a preemptive measure to facilitate the launch of the first Bitcoin ETF in the United States.
Although it’s far from certain, permission might occur as early as January 2024, which has long been anticipated to be a turning point for cryptocurrencies. However, only some believe that an acceptance will cause the price of bitcoin to suddenly spike upward. Among them is well-known trader Bitcoin Jack, who expressed doubts about BTC/USD reaching $42,000 in a recent X post. “42k, I said. Not sure whether we still get there,” he said on November 21.
Bitcoin Jack clarified that the news from ETFs and Binance this week had not changed the mechanics of the market. “Anticipate that any speculation regarding a Binance versus US resolution will be more optimistic than the market indicates (justifications: favorable for ETF. Reduced uncertainty for investors in the event of a resolution). In addition to the generally optimistic headlines from the previous few weeks (apart from Kraken. Although a lot of it is recycled language from previous crackdowns),” he said. He introduced possible downside targets. He pointed out that even if the support levels are “clean,” $30,000 may still be relevant.
“The truth sometimes lies in what doesn’t happen,” he said in closing.
One spot Bitcoin ETF, $1 million BTC?
Other recent estimates, as published by Cointelegraph, continue to view the low $ 30,000 as a correction zone, partly because of the persistence of liquidity in that region.
See Also: Bitcoin ETF fervor returns as a “bold bid” propels the price of BTC to around $38,000
Co-founder of trading software DecenTrader Filbfilb questioned his followers in a recent social media poll if they thought Bitcoin would first achieve $30,000 or $40,000. Most people felt the same way about the result. Meanwhile, Samson Mow. CEO of Jan3, a company that promotes Bitcoin adoption, is on the other side of the ETF debate.
On November 23, he said in a post on X that the approval might cause Bitcoin to reach $1,000,000 per coin and that holders were wrong to expect any lower price. After ETF money began to stream in, he remarked. “It has come to my attention that some Bitcoiners don’t think Bitcoin can reach $1,000,000 in a matter of days/weeks.” The price of BTC/USD was $37,000 at the time of writing, according to TradingView and Cointelegraph Markets Pro statistics.
Spot bitcoin ETF approval is ‘inevitable,’ says former SEC chairman
Authorization of a spot bitcoin ETF is “inevitable,” according to the former head of the SEC, Jay Clayton.
Clayton stated, “The division between a cash product and a futures product cannot continue indefinitely.”Jay Clayton is the former head of the U.S. Securities and Exchange Commission (SEC). The country has stated that it will soon have a spot bitcoin exchange-traded fund (ETF).
Bitcoin is not a security. Institutional and retail investors alike want access to Bitcoin. And—perhaps most significantly—some of our most dependable suppliers. Who fulfills fiduciary or best-interest obligations? Want to make this commodity available to the general public? Hence, I believe that approval is specific,” Clayton stated to CNBC on Friday.
“The contrast between a future goods and cash product can’t go on for.
In the United States, futures-based bitcoin ETFs exist, but the SEC has yet to authorize a spot bitcoin ETF. A federal court ruled earlier this week in the Grayscale vs. SEC case that there was little reason for the SEC to allow bitcoin futures-based ETFs but deny spot bitcoin ETFs as fraud and manipulation in the bitcoin spot market pose a similar risk to both futures and spot products due to the spot bitcoin market and the CME bitcoin futures market being so tightly correlated. As a result, the court decided that the SEC’s rejection of Grayscale’s request to convert its bitcoin trust (G BTC +) into an ETF was “arbitrary and capricious” since the agency failed to explain why it treated identical products differently.
SEC Rejected
According to the judgment, if the SEC wishes to reject Grayscale’s petition again. It must do so based on new concerns or reasons other than fraud and market manipulation threats in the spot bitcoin market. Clayton admitted the prospect of a second rejection for new grounds but still determined the reasons.
Earlier this week, the SEC said it would postpone judgments on spot bitcoin ETFs proposed by some businesses. Including BlackRock, Fidelity, and Invesco, until mid-October. Clayton stated that the SEC might judge then or later, but he expects to see “progress on this going forward.”
JPMorgan also predicts that a spot bitcoin ETF will eventually become approved in the United States. Following Grayscale’s success in its battle against the SEC, the banking giant recently stated. “The SEC’s compelled approval of the spot bitcoin ETF applications, which are still waiting from many asset managers, becomes increasingly plausible. Including that from Grayscale.”
Conclusion:
Spot bitcoin ETFs expose investors to fluctuations in bitcoin prices in their brokerage accounts by investing directly in bitcoins rather than derivatives contracts. These ETFs safely store bitcoins in a digital vault, issue shares, and rebalance holdings regularly. Authorized players create or redeem shares based on market demand, maintaining price consistency with bitcoin costs.
For investors, spot bitcoin ETFs are more straightforward and transparent. However, short-term BTC price morale is deteriorating, and Bitcoin may not recoup $40,000 despite rising interest in a spot ETF. The US vs. Binance regulatory crisis, which resulted in a $4.3 billion punishment and the dismissal of Changpeng “CZ” Zhao as CEO, has cast doubt on the bullishness of ETFs for BTC price action. Former SEC chairman Jay Clayton believes spot bitcoin ETF approval is inevitable.
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FAQs
The Securities and Exchange Commission is hot to approve applications for spot bitcoin ETFs, although analysts predict that the first approval may occur as early as 2024. According to Bryan Armour, Morningstar’s research director for passive strategies in North America, the asset is still entirely speculative and volatile.
The first Bitcoin ETF authorized for trading in U.S. markets is the ProShares Bitcoin Strategy ETF. After its debut in October 2021, BITO quickly attracted $1 billion in assets, making it one of the most actively traded ETFs in market history.
In recent months, there has been increasing confidence due to the possibility that U.S. authorities may approve spot bitcoin ETFs. A spot bitcoin ETF subject to U.S. regulation may raise the price, demand, accessibility, and liquidity of BTC. Still, there are expenses connected to this kind of innovation.