The bitcoin
community has been anticipating the debut of a spot-based Bitcoin
Exchange-Traded Fund (ETF). For years, investors have been anticipating the
advent of such a financial product, which would allow them to acquire exposure
to Bitcoin’s price changes without having to deal with the complications of
holding and keeping the digital commodity.
Understanding
Bitcoin Exchange Traded Funds
Before digging
into the prospects of a spot-based Bitcoin ETF, it’s
critical to understand the nature of these investment vehicles. An ETF is a
sort of investment fund and exchange-traded product that has stock
exchange-tradable shares. A Bitcoin ETF, for example, would draw its value from
the price of Bitcoin, allowing investors to purchase and sell shares that track
the cryptocurrency’s performance.
Bitcoin ETFs
are classified into two types: futures-based and spot-based. Bitcoin futures
contracts, which are financial derivatives connected to the future price of
Bitcoin, are invested in by futures-based ETFs. Spot-based ETFs, on the other
hand, seek to directly own and store physical Bitcoin, closely following its
price swings.
Regulatory
Obstacles
One of the
major impediments to the introduction of a spot-based Bitcoin ETF is regulatory
scrutiny. The Securities and Exchange Commission (SEC) of the United States has
often expressed worry about the possibility of market manipulation and fraud in
the cryptocurrency market. These problems have resulted in a number of
rejections of proposals for spot-based Bitcoin ETFs throughout the years.
The SEC’s main
concerns about spot-based Bitcoin ETFs are market surveillance and custody. The
Commission is adamant about having strong safeguards in place to protect
investors and ensure the safe custody of underlying assets. Regulators want
robust oversight to detect and deter fraudulent activity in the bitcoin
business.
The Impact
of Bitcoin ETFs Based on Futures
While spot
Bitcoin ETFs are still elusive, their futures-based counterparts have made
great progress. The ProShares Bitcoin Strategy ETF (BITO) became the first
futures-based Bitcoin ETF to get SEC clearance in October 2021. This watershed
moment in the cryptocurrency investment scene allowed investors to obtain
exposure to Bitcoin via a regulated ETF structure.
The SEC’s
clearance of BITO indicated…
