The Spot Bitcoin ETFs have been approved in the US

As at the 10th of January (US time) the 11 outstanding applications for a US-based spot Bitcoin Exchange-Traded Fund were approved by the US Securities and Exchange Commission. This milestone marks a significant leap forward for the digital asset space, as this is the first time that a spot Bitcoin ETF has been approved for listing in the US. Although Bitcoin futures based ETFs have been operating in the US since 2020, there is a key difference in the ETF offerings. ETFs can be categorised into different types based on the underlying assets and investment strategies. Simply put a spot ETF holds the actual underlying assets they track, whereas futures or derivatives based ETFs hold synthetic ETFs using financial instruments to mimic the returns of the underlying index instead of holding the physical asset. Investors in spot ETFs indirectly own a portion of the physical asset held by the fund.

Which applications have been approved?

Fund managers such as BlackRock, Fidelity, Franklin Templeton, Invesco, Ark Invests, Bitwise, Grayscale, VanEck, WisdomTree, Hashdex and Valkyrie all received approvals on their applications. Of the approved applicants, four have over US $1 trillion in assets under management.

BlackRock is currently the largest asset manager in the world with a reported $9 trillion in assets under management, with ETFs representing roughly a quarter of their total AUM. BlackRock’s iShares boasts over 400 approved ETFs which consistently set industry benchmarks, offering a diverse range of investment options across various asset classes. The sheer scale of their ETF assets under management underscores the trust investors place in their products. Their continued dominance reflects a profound understanding of evolving investor needs, with BlackRock CEO, Larry Fink stating that the firm is interested in digital assets because it sees legitimate demand from its clients in a spot Bitcoin ETF.

What is the current state of Bitcoin?

Bitcoin represents the beginning of a new financial system that at its core is an electronic payments system created out of the instability of the financial market post the Global Financial Crisis. At the time of writing Bitcoins price is US $46,000, boasting a market cap of over US $900 billion, making it the 10th most valuable asset in the world by market capitalisation. Bitcoin’s market cap at its all time high totalled US $1.27 trillion, and if its price were to reach US$100,000, its market cap would total nearly US $2 trillion dollars. According to a 2023 study by crypto.com, 2.74% of the global population hold Bitcoin, which speaks volumes to Bitcoin’s dominance whilst adoption has remained relatively low.

What this means for the broader digital asset space – is a spot Ethereum ETF next?

Now that spot Bitcoin ETFs have become a reality in the US, many continue to speculate what this means for the general industry. With Standard Chartered estimating ETF inflows of up to US $50 billion to US $100 billion this year, retail investors will now have the ability to gain exposure to digital assets in a simplified, secure, and regulated manner through a traditional fund structure. Although Bitcoin has been the key focus for ETF applicants thus far, BlackRock and Fidelitys recent SEC filings for a spot Ethereum ETF, show the promise that digital assets now present to traditional financial institutions. While Bitcoin Exchange Traded Products offer investors simplified exposure to digital assets, Ethereum which encompasses the greater Web3 infrastructure, may open the gateway for other digital assets, especially as a regulatory framework is built within the US.

Why an ETF structure?

In conclusion, the approval of a spot Bitcoin ETF will enhance the accessibility of Bitcoin for a broader spectrum of both retail and wholesale investors, enticing institutional players who have been awaiting a regulated investment avenue. The resulting increase in liquidity from ETF inflows could mitigate market volatility and attract risk-averse participants. Spot Bitcoin ETFs not only signify a maturation of the digital asset market but also prompt further adoption not just for those looking for exposure, but those willing to offer it.