Bitcoin ETF: Could Things Go Wrong?

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Bitcoin ETF: Could Things Go Wrong?

Bitcoin ETF: Could Things Go Wrong?

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Wall Street Welcoming a BTC ETF

The crypto community is currently buzzing with news on the launch of the first spot Bitcoin ETF for the U.S. market, closely monitoring the price of the coin, which has been significantly fluctuating over the past few weeks.

If rumours were to come true, a Bitcoin exchange-traded fund (ETF) is making its way to Wall Street, and that is considered to be a breakthrough in the crypto industry.

Opinions diverge as to whether the introduction of a spot BTC ETF will be more of a challenge rather than an opportunity to the markets, but this investment product is still being widely perceived as bullish not only for Bitcoin itself, but to the industry as a whole.

Being highly anticipated by major market players for over 10 years now, analysts stated that the approval of such a product will lead to institutions flooding the space in cash, consequently leading the price of Bitcoin to rocket.

This may (or may not) be true, but one thing is sure, any bit of ETF-related news will be sending the price of Bitcoin flying:

  • On October 23, Bitcoin soared by $4,000 in the span of just 24 hours after a positive update on BlackRock’s planned Bitcoin ETF.

However, even if the market cap and price of the coin does go through the roof, will it be a good thing? Privacy-focused “Bitcoiners” have even gone to the extent of saying that such a product goes against everything that Bitcoin stands for.

Traditional Finance Entering the Crypto World

Even if the timing of any upcoming approval by the SEC remains uncertain, digital-asset enthusiasts argue that the spot ETFs planned by the likes of BlackRock Inc. is most likely to trigger a wider adoption of Bitcoin worldwide.

On one hand, experts have stated that Wall Street’s interest in the cryptocurrency could lead governments to coerce crypto users into restriction, taxes, and penalties.

More specifically, the SEC has been on the back of many crypto exchanges lately, incorporating strict rules, and penalising at any given chance.
As already seen with big crypto players Binance and Coinbase, lawmakers are already cracking down on the industry by increasingly focusing on anti-money laundering practices.

On the other hand, others have argued that with Wall Street stepping foot in the market, the cryptocurrency will become more centralised and correlated with traditional stocks.
Bitcoin adopters have been waiting and hoping for years that the coin would decouple from securities.

But if BTC ETFs on Wall Street and centralised custodians became the norm for people to get exposure to BTC, users could eventually get banned from the network.

Will a Bitcoin ETF Live Up to the Hype?

As already discussed, with the SEC being reluctant to approve the long-awaited product, the timing of a launch is far from a certainty.

  • An ETF would track the price of Bitcoin.
  • Investors will gain exposure via buying shares and not dealing with digital wallets or exchanges.
  • Such a fund could potentially drive an influx of capital into the BTC market.

But what if it doesn’t prove worthy?

J.P. Morgan researchers downplayed the impact of spot crypto exchange-traded products, stating that these products haven’t yet moved markets with large investor interest in both Canada and Europe.

“Spot Bitcoin ETFs [have] existed for some time outside the United States, in Canada and Europe, but have failed to attract large investor interest,” analysts wrote.

Additionally, despite the potential advantages of physically backed bitcoin ETFs over futures-based funds, it has been suggested that the differences are relatively minor.
Spot ETFs offer a more direct and secure method for exposure to BTC, eliminating complexities related to custody, transfer, and basis risk associated with futures-based products.

JPMorgan suggests that if spot bitcoin ETFs were to be introduced, there is a high possibility of trading activity and liquidity shifting away from U.S. bitcoin futures markets. The bank believes that this potential migration could happen if spot bitcoin ETFs replace futures-based bitcoin ETFs.

                 Pros 

                              Cons 

Lack of the biggest barriers to entry for crypto: 

  • Creating an account with a crypto exchange 
     
  • Creating a blockchain wallet to hold your crypto  
     
  • Crypto taxes  
     

Losing direct access to Bitcoin: 
 

  • When you hold BTC in your own wallet, you can do as you please with it.  
     
  • However, when you buy an ETF, you are buying shares in a fund that holds Bitcoin, and not a direct stake in BTC itself.  

The perceived “sketchiness” of the crypto industry will be removed  

Paying highly compensated professionals on Wall Street for something you can easily do yourself.  

Moreover, a spot Bitcoin ETF will be:

  • Audited
  • Monitored
  • Tracked
  • Highly Transparent

Final Notes

Many investment firms have been applying for a Bitcoin ETF since 2013, only to face rejection from Wall Street’s top regulator, as it cites concerns about market manipulation… Asset managers like VanEck, Ark Invest, and Bitwise have all been previously rejected.

  • Certainly, we can expect the introduction of a spot Bitcoin ETF products to have a massive impact on the coin itself, and the overall industry as a whole.
  • With the first bitcoin-linked ETF ever hitting U.S. market, they will open wider possibilities for experienced investors to get access to Bitcoin.

As the SEC has ramped up a fierce crackdown on the digital asset industry, will BlackRock manage to break the cycle, and get its application approved?

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