Bitcoin ETF: Prospect and Future

June 10, 2021 | 

Investing in Bitcoin is an exciting activity. With the growth in interest from financial institutions, the prospect of launching a Bitcoin ETF has also gained traction in recent years. With firms such as VanEck and Fidelity applying to launch their own ETF, it becomes harder for regulators to reject them.

In this article, we look at what the future holds for the Bitcoin ETFs, what they will be like, and how they will trade.

The Basics of Bitcoin ETFs: What We Need to Know

Belonging to a wider asset class of exchange-traded products, ETFs are the most widely-known and attract the most volume. ETFs trade similarly to Stocks and have the capability of tracking one or a group of assets through the

direct acquisition of securities or replication of their performance via derivatives.

Right now, the largest Bitcoin ETF is the Bitcoin Tracker EUR which is valued at 1 billion USD and listed on the Stockholm Stock Exchange. A number of U.S. investment trusts also keep tabs on Bitcoin and have released products that mimic an ETF.

The Grayscale Bitcoin Trust (GBTC) and the Purpose Bitcoin ETF (BTCC) from Purpose Investments Inc. are examples of existing BTC products that are similar or identical to an ETF. At the time of writing, Grayscale’s Bitcoin Trust has a market capitalization above 20 billion USD. BTCC is currently valued at nearly 150 million USD on the Toronto exchange in Canada.

Will There Be Demand for Bitcoin ETFs?

The simple answer to this question is: there is a high possibility. The Grayscale Bitcoin Trust, or GBTC had made wide advances in the midst of Bitcoin’s bullish run during the first quarter of 2021. To date, GBTC holds more than 20 Billion USD in value, an amazing jump from $2.9 Billion in 2020. The market capitalization of the Bitwse 10 Crypto Index Fund had climbed to 1.2 Billion just 5 months since its launch in December of 2020.

We can fairly assume that the demand for Bitcoin ETFs is relatively-strong. On top of that, the fund’s value can exceed the holdings overt time, which suggests that investors are willing to pay a premium in order to access an ETF over spot Bitcoin holdings.

ETF Premiums

Analysts and investors know that buying investment trusts are safer and more convenient compared to buying spot Bitcoin. Without the necessity of setting up digital wallets, the investors can already go about buying and selling shares on an exchange that they are already familiar with. Should Bitcoin ETFs start to get approved by regulators, then it is possible that the premiums trust products would dive and demand moves to ETFs.

Regulators Stance on Bitcoin ETFs

Bitcoin ETF: Prospect and Future

Liquidity and volatility are two the primary considerations that regulators look at to assess the viability of Bitcoin ETFs. Liquidity is currently seen as being insufficient, while volatility is also still a heavy concern. For instance, Bitcoin had recorded 3 full-year returns of the following figures:

  • Year 1: 74% loss
  • Year 2: 95% gain
  • Year 3: 305% gain

The numbers speak for themselves. The value is wholly unpredictable in light of the digital asset’s volatility.

There is also the question of funds having the necessary information to be able to accurately value cryptocurrencies or any products related to it. Validation of coin ownership is another matter being discussed in regards to safely launching a Bitcoin ETF.

Interest from Notable Investors

Apart from VanEck, Galaxy Digital Holdings Ltd. and Fidelity Investments have also applied to launch an ETF based on Bitcoin. Bitwise Asset Management also expressed interest and may submit an application any day. Meanwhile, the following firms have also made statements that signal an interest to launch a Bitcoin ETF:

  • GraniteShares
  • Direxion
  • WisdomTree
  • ProShares
  • First Trust
  • Grayscale

Potential Drawbacks of Bitcoin ETFs

Unpredictable price swings, (which is owed to the volatile nature of Bitcoin) are one of the things that hinder the approval of Bitcoin ETFs. Beyond the volatility, Bitcoin is also inaccurately perceived by numerous analysts to be fertile grounds for online criminal activity. While this perception is largely inaccurate, it is still widespread and can cause regulators to be unnecessarily strict towards approving Bitcoin related products to enter the markets.

The Takeaway

With everything that had been discussed, it is apparent that Bitcoin ETFs are still on hold are regulators monitor the liquidity and volatility present in the cryptocurrency markets. Apart from this, the asset, despite its volatility and observed insufficient liquidity, is gaining the favor of many institutions like Fidelity and VanEck. These organizations alongside many token holders have made efforts to sway regulators to approve a Bitcoin ETF.

Such implementation would benefit global economies especially with the world in the midst of a pandemic. While we are emerging from the worldwide lockdowns, we look towards the first Bitcoin ETFs hitting markets in the U.S. to provide traditional investors with more convenient and comfortable access to the performance of Bitcoin.

 

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