The possibility of a Bitcoin exchange-traded fund based on spot prices is generating a lot of speculation, with crypto trading firm NYDIG claiming that it might spur $30 billion in new interest for the token.
The buzz comes as the biggest asset manager in the world, BlackRock, submitted a proposal last month to start an ETF that would directly own Bitcoin. Companies like WisdomTree, Invesco, and Fidelity soon followed suit.
BlackRock and the other applicants may have found a method to allay the Securities and Exchange Commission’s concerns by inserting additional agreements for fraud surveillance, even though the agency has previously rejected similar proposals.
A judge’s decision in the widely followed legal dispute between the SEC and Grayscale Investments, which had sued the organization over its denial of efforts to convert the Grayscale Bitcoin Trust into an ETF, is also anticipated to be made soon. A favorable verdict for Grayscale may make it more difficult for the agency to block the ETF applications.
Even if a spot Bitcoin ETF is allowed, there is reason to doubt that it will be the game-changing token that its proponents claim it would be.
The bull argument, as presented by NYDIG, compares the potential demand for a Bitcoin ETF to funds holding gold. Bitcoin is a substitute for the precious metal, according to crypto speculators who have made this claim for years. While it lacks the industrial application of gold, it does have a limited supply and is viewed as disaster insurance if the dollar-based monetary system collapses.
In light of this, NYDIG reported last week that Bitcoin funds have roughly $28.8 billion invested, compared to around $210.8 billion for gold ETFs. Since Bitcoin is more unstable than gold, there would be an additional $30 billion in demand for a spot Bitcoin ETF, according to NYDIG, after taking into consideration the fact that investors would need to hold less of the token to take an equivalent risk exposure.
Token prices would undoubtedly benefit from the additional $30 billion, but there are many reasons to doubt that the establishment of a spot Bitcoin ETF would result in such a feast.
The majority of investors who anticipate an increase in the price of Bitcoin already have a variety of ways to invest in the token, which is one explanation. Traditional companies like Fidelity and WisdomTree have recently included cryptocurrency trading into their own products. Retail investors and financial advisors have long purchased Bitcoin through cryptocurrency trading platforms like Coinbase (COIN).
A Bitcoin ETF based on spot pricing hasn’t been approved by the SEC, but funds based on Bitcoin futures have, like the ProShares Bitcoin Strategy ETF (BITO), which has around $1 billion in assets. A further several billion dollars are held in Bitcoin ETFs that are governed by other nations. Nearly $19 billion is now being managed by the closed-end fund-like Grayscale Bitcoin Trust in the US.
All of this means that while a spot Bitcoin ETF would be less expensive and more effective than current options, it might actually draw investors away from other products rather than spurring demand in general.
The idea that a spot Bitcoin ETF will increase the price of Bitcoin is widely held, but Stuart Barton, chief investment officer of Volatility Shares, questions if this will actually be the case.
The 2x Bitcoin Strategy ETF (BITX), which employs futures to try to provide investors exposure to twice the daily variation in the token’s price, was launched by Volatility Shares late last month, shocking several executives in the crypto and ETF industry. Such leveraged products are regarded as hazardous, particularly when linked to volatile assets like Bitcoin. Executives have claimed the SEC acted recklessly by authorizing the fund while denying spot Bitcoin ETFs.
Barton said that Bitcoin futures have been available for many years and that bringing the ETF to market wasn’t as difficult as some would believe.
The actual question, according to Barton, is why so many people believe that a spot Bitcoin ETF will perform significantly better than a futures-based ETF in terms of obtaining unleveraged Bitcoin exposure.
