If you’ve been following the Bitcoin ETF story lately, you’ve maybe seen headlines like these…
Bitcoin ETF Approval Odds Just Got Better: Bloomberg Analysts
They now see a 65% chance a U.S. spot bitcoin ETF will launch this year, up from 50% previously.
Regular readers will know what this is all about…
But then, the Securities and Exchange Commission (SEC) kind of said, “Not so fast.” It claimed that BlackRock’s application was “lacking.”
So, BlackRock went back to the drawing board. And the company submitted a revised application to address the SEC’s concerns.
So far, it seems to be working out…
On July 15, news broke that the SEC added BlackRock’s application to its official docket.
That tells me that the SEC is probably going to give the application a serious look.
I wouldn’t be surprised if it’s a matter of when, not if, BlackRock’s application goes through.
I mean, we are talking about BlackRock here.
The company manages $9.1 trillion and has its fingers in every region, industry, and type of asset out there. It pretty much owns the world.
But here’s the cherry on top…
BlackRock’s not the only one pushing for a Bitcoin ETF.
So are other major players – like Fidelity and Invesco. They’re also applying for their own spot Bitcoin ETFs, alongside BlackRock.
And that’s a big deal. Why?
Because if one of them is approved, it would be the first spot Bitcoin ETF in the U.S.
And it would be tradable on a traditional stock exchange.
That means that, for the first time, anyone could buy Bitcoin in a regular brokerage account.
Not Bitcoin futures.
Not confusing Bitcoin “funds” that trade at an ever-changing premium or discount.
And no need for you to sign up for special crypto exchanges, either.
You can see why this is one of the most significant stories in the crypto market right now.
But you’re probably wondering… What will happen to Bitcoin’s price if the SEC gives the green light for a spot Bitcoin ETF?
Why a Spot Bitcoin ETF Is a Big Deal
Now, there is no crystal ball to tell us how any of this will play out. Anyone who says otherwise is misinformed or just straight up lying to you.
But I’m optimistic that, if the first Bitcoin spot ETF in the U.S. gets approved, it will attract a lot of new capital. It could even ignite the next bull run.
Before we get into what it could do to Bitcoin’s price, though, let’s talk about what we really mean by a spot Bitcoin ETF.
A Bitcoin ETF is just a pool of money that invests into Bitcoin.
As I’ve mentioned, Bitcoin ETFs already exist. Two popular products are the Grayscale Bitcoin Trust (GBTC) and the new ProShares Bitcoin Strategy ETF (BITO).
But these products are not without problems.
GBTC is a trust that holds Bitcoin. But it trades like a closed-end fund and has no redemption mechanism.
This means that the market price of GBTC can deviate a lot from the actual value of the Bitcoin it holds.
Take 2018, for example. At times, investors were paying as much as a 100% premium to the underlying price of Bitcoin. That’s GBTC’s biggest drawback.
A spot Bitcoin ETF is designed to track the Bitcoin price, minimizing the likelihood of premiums or discounts.
What about BITO?
Well, with BITO, you don’t invest directly in Bitcoin but in Bitcoin futures contracts.
The fund buys positions in one-month CME Bitcoin futures contracts. As the contracts near expiration, BITO gradually sells them and buys longer-dated contracts.
Now, the price of the futures contract is likely to closely track the price of spot Bitcoin. That’s the good news.
The bad news is that rolling from one futures contract to the next has a cost. These costs accumulate over time, ultimately impacting the value of BITO and, thus, anyone’s investment in BITO.
By contrast, a spot Bitcoin ETF allows you to track the price of Bitcoin directly. So, if Bitcoin’s price goes up, so does the ETF and vice versa.
A spot Bitcoin ETF would also be available across all brokerages, exchanges, and other trading platforms.
No need to sign up for a crypto exchange or open specific brokerage accounts just to trade crypto.
Instead, you could add Bitcoin to your portfolio through your existing brokerage account – without dealing with KYC rules or minimum deposits on different platforms.
In other words, a spot Bitcoin ETF would offer retail investors a hassle-free way to invest in Bitcoin.
And the list of benefits doesn’t stop there:
With a spot ETF, you could buy Bitcoin through your 401(k) or even your IRAs like Roth and traditional IRAs.
It would offer more security. That’s because it would undergo an extremely thorough regulatory approval process. This includes an examination of the ETF’s structure, investment strategy, custodial arrangements, and disclosure practices.
It would also have to keep up with ongoing compliance requirements, such as regular reporting and audits. This strengthens scrutiny and oversight – meaning more protection for investors.
It could be cheaper than Bitcoin alternatives available right now. That’s because additional fees – such as spreads or transaction fees – wouldn’t be incorporated into the trading process.
A Bitcoin ETF would have a transparent fee structure, giving investors more clarity about the costs involved.
These are just some of the things that would make a Bitcoin ETF a financial product for the masses.
And it wouldn’t only attract more retail investors. It would also make Bitcoin more appealing for institutions and advisors managing clients’ investments.
And all it would take for the floodgates to open is the SEC’s approval of a spot Bitcoin ETF.
As for what that would mean for Bitcoin’s price? I’ll have more to say on that in our next regular edition. So stay tuned for that on Monday…
Editor, Inside Wall Street with Nomi Prins
P.S. On September 20, a rare, generation-defining event we have only seen three times in the last century is about to hit the markets…
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