Oct 6, 2023

The BTC Spot ETF Revolution: The catalyst the crypto world has been waiting for

Introduction: The buzz you can't ignore

If you've been scrolling through your X feed lately, you've likely seen "BTC Spot ETF" pop up more times than you can count. It's the buzzword du jour, capturing the attention of everyone from crypto novices to Wall Street moguls.

But why all the fuss, especially when the crypto market has lately been as stagnant as a pond with no ripples?

Strap in, because we're about to dissect why Spot ETFs could be the game-changer that the crypto world has been yearning for.

What's a Spot ETF, anyway?

Before we dive into the deep end, let's wade through the basics. ETF stands for an exchange-traded fund, a nifty financial product that allows you to buy a basket of assets, like the Bitwise 10 crypto index fund, as if you're purchasing a single stock.

Spot ETFs are the new kids on the block, offering a direct, cost-effective, and potentially more lucrative way to invest in assets like Bitcoin. While you can buy BTC or other assets on a CEX, this isn’t suitable for everyone. Institutions and financial professionals, for example, can only invest within the bounds of a very strict risk profile that direct investment might not fit with. ETFs, owing to their highly regulated nature, tend to fit better.

But how do Spot ETFs compare to Futures ETFs? Let's dig deeper.

Spot vs. Futures ETFs: The showdown

Spot ETFs are potentially huge, offering non-crypto natives a direct connection to the asset—in this case, Bitcoin. It's like ordering a gourmet pizza and getting precisely the toppings you requested—no surprises.

On the other hand, futures ETFs are a bit like a mystery pizza box; they invest in futures contracts, adding layers of complexity like expiration dates and potential contango when the future price is higher than the spot price, which could eat into your returns.

The Data Dive: Why Spot ETFs are the real MVPs

Numbers speak louder than words, and the data is overwhelmingly in favor of Spot ETFs. According to a study by the CME Group, Spot ETFs have historically outperformed Futures ETFs across various asset classes.

Source: LedgerPrime

Take gold, for example. The SPDR Gold Shares (GLD), a Spot ETF, has seen an average annual return of about 10% since its inception in 2004. In contrast, gold futures ETFs have lagged behind, with average annual returns ranging from 4% to 8%.

And let's not forget, the global ETF market is projected to skyrocket to a staggering $20 trillion by 2026, offering a colossal upside.

The SEC chronicles: A tale of rejections

Ah, the SEC — the ultimate buzzkill in the crypto party. They've been consistently denying Bitcoin ETFs for as long as we can remember. From the Winklevoss twins' multiple attempts since 2013 to firms like Direxion and ProShares, the SEC has been handing out rejection letters like they're going out of style.

The big, glaring reason cited repeatedly is the risk of market manipulation. They're also concerned that the crypto market isn't mature enough, is too susceptible to manipulation, and lacks the regulation needed for them to give the green light.

Beyond this, liquidity has also been a concern. The SEC wants to ensure that any ETF has a robust market presence to prevent any "flash crashes" or other market anomalies. It's like making sure there's enough punch for everyone at the party.

The SEC's current stance: A glimmer of hope?

But here's the kicker: the winds of change seem to be blowing. With increased institutional interest and a more mature market, the SEC might finally be warming up to the idea of a BTC Spot ETF.

The SEC is still dragging its feet on several of these applications, most recently on the ARK 21Shares Bitcoin ETF in August 2023, citing the standard concerns we already know. ARK also filed for the first spot Ether ETF simultaneously, and nine separate Ethereum futures ETFs launched on October the 2nd, indicating that things might be hotting up inside the institutions.

From the ARK Invest ETF offering portfolio, it’s clear they keep at least one eye on the future, and they might be telling everyone else to get with the program.

Though it’s difficult to predict when the SEC approval might happen, some experts believe the SEC could approve a spot Bitcoin ETF in early 2024. This is because the agency has a maximum of 240 days to review an ETF application, and several applications have been pending for over a year. The likelihood of approval is a different story we’ve written about here.

However, if they were to approve in early 2024, this could be incredibly bullish for the space as it may well coincide with the next Bitcoin halving. It’s worth keeping an eye on prediction markets here to see what everyone else in the space is thinking.

The BlackRock angle: a strategic play

While we're all on the edge of our seats waiting for the SEC's decision, BlackRock isn't sitting idle. They've been strategically buying up shares in Bitcoin mining companies like Riot, Marathon, Cipher, and Hut 8, four of the five largest Bitcoin mining companies by market cap.

Riot Platforms Inc. (NASDAQ:RIOT): $1.92 billion market cap
Marathon Digital Holdings Inc (NASDAQ:MARA): $1.83 billion market cap
Cipher Mining Inc (NASDAQ:CIFR): $0.74 billion market cap
Hut 8 Mining Corp (NASDAQ:HUT): $0.50 billion market cap
Terawulf Inc (NASDAQ:WULF): $0.41 billion market cap

It's a clever move, offering indirect exposure to Bitcoin and a long-term bet on the entire crypto ecosystem. If a financial behemoth like BlackRock is bullish on Bitcoin, it could be something the rest of us should pay attention to.

Conclusion: The dawn of a new crypto era?

So there you have it, crypto enthusiasts! A BTC Spot ETF could be the adrenaline shot that the languishing crypto market has been searching for.

With the potential for SEC approval on the horizon and industry giants like BlackRock making strategic moves, the crypto investment landscape is on the cusp of a seismic shift.

If the BTC spot ETF is finally approved, it might be time to fasten your seat belts. We don’t know what’s coming, but it seems like it’s about to get wild.

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