Why is the market excited about a potential Bitcoin ETF?

About Bitcoin

Bitcoin is a decentralized digital currency that operates on a peer-to-peer network, allowing users to send and receive payments without the need for intermediaries like banks. It is based on blockchain technology, a secure and transparent distributed ledger. Bitcoin transactions are verified by network nodes through cryptography, and new bitcoins are created through a process called mining. Bitcoin is known for its limited supply, capped at 21 million coins, which contributes to its value and potential as a store of value.

Which companies have submitted applications for Bitcoin ETFs?

Over the past month, there has been a lot of news about approvals for the first Bitcoin ETF. Currently, there are a total of 14 asset managers hoping to win the Securities and Exchange Commission (SEC) approval for a spot Bitcoin ETF. These include some of the world’s largest asset managers, including BlackRock, Fidelity, Grayscale, 21Shares, Ark Invest, Bitwise, VanEck, WisdomTree, and Invesco.

This interest demonstrates the growing societal acceptance of Bitcoin and cryptocurrencies over the past decade. Furthermore, it highlights that cryptocurrencies are likely to be even more popular in the future for investors.

What is a Bitcoin ETF?

A Bitcoin Exchange-Traded Fund (ETF) is a fund that tracks the value of Bitcoin, which trades on a traditional stock market exchange rather than a cryptocurrency exchange. A Bitcoin ETF will broaden the cryptocurrency investment base and can potentially lead to a boost in Bitcoin’s price. Most importantly, a Bitcoin ETF will make it safer and easier to gain exposure to Bitcoin, as well as open the door for large institutional and retail investors to invest in the cryptocurrency.

The advantages of a Bitcoin ETF include providing investors with a level of convenience to invest in Bitcoin without needing to create a cryptocurrency wallet, offering a level of diversification outside of normal equities, and allowing for government regulation of Bitcoin, which can subsequently provide tax efficiencies.

However, owning a Bitcoin ETF does have its limitations. For one, owning a Bitcoin ETF does not provide any Bitcoin ownership. Additionally, ETFs charge management fees for the convenience they provide. This fee will cause the ETF to underperform Bitcoin.

What is the status of the Bitcoin ETFs approval?

The market has been increasing its expectations in recent weeks that the SEC could approve a Bitcoin ETF. Bloomberg analysts put the chance of approval in the coming weeks at 90%. An approval is expected to increase the price of bitcoin and other cryptocurrencies.

However, the approval of the ETF is by no means guaranteed. At present, governments and regulators haven’t identified how to exert control over cryptocurrencies. Additionally, the past troubles with cryptocurrency exchanges such as FTX and Binance could weigh heavily on the approval process.

A decision on the Bitcoin ETF is expected to be fulfilled by Quarter 2, 2024. Analysts say that if a Bitcoin ETF is not approved, the price of Bitcoin and other cryptocurrencies could fall considerably.