A Bitcoin ETF is an abbreviation for the exchange-traded fund that uses Bitcoin as an underlying asset. Investors may buy and sell shares of this fund on the exchange. The profit is pegged to the price of Bitcoin.
At the same time, traders are not using actual cryptocurrencies, which means the assets have an added layer of protection. The safety and security of the customer’s assets are the responsibility of Bitcoin-ETF issuers. This is the main differentiating factor when compared to the cryptocurrency exchanges, which are more exposed to a variety of risks.
According to experts, this security instrument can be used by different institutions that provide financial services for their clients. For example, banks, insurance companies, retirement, and investment funds. As a result, this should have a positive impact on the price of a bitcoin and the entire crypto market.
Existing Cryptocurrency ETFs
Several Bitcoin ETFs have already been launched. Before investing, you should take into account their differences in availability, commission fees, structure, as well as options for gaining access to virtual currencies and all other terms.
GBTC - Grayscale Bitcoin Investment Trust
Grayscale was among the first companies to offer traditional investors access to virtual currency, by issuing GBTC, which is an OTC ETN (not an ETF).
The potential risk of an ETN is the possibility of losing the entire investment if the Trust goes bankrupt. But accredited investors have the opportunity to participate in the trust by making periodic private placements. The premium, in this case, is 20% and the commission is 2%.
BITW - The Bitwise 10 Private Index Fund
In 2017 the first crypto index fund Bitwise 10 Private Index Fund was launched. Today it includes the 10 largest cryptocurrencies. A cold wallet is used to store the fund's assets, which are regularly monitored by independent auditors.
Accredited investors have access to the fund through Bitwise for private placement. They are paying a 2.5% commission. In order to buy or sell the specific asset, investors are required to select the "BITW" ticker in their accounts.
BTCE - BTCetc Bitcoin Exchange Traded Crypto
BTCE is the first Bitcoin exchange product with centralized clearing. The fund was launched in the summer of 2020 in Germany. It provides investors with regulated and safe digital access to Bitcoin.
The total assets amount exceeds $ 1 billion, and commission fees are 2%. The independent HANetf platform introduced this product to the financial market.
CXBTF is operating in the over-the-counter markets. It is an ETN service. It was launched by the company called XBT Provider back in 2015 on Nasdaq Stockholm Stock Exchange.
Initially, the fund could only be purchased using euros or Swedish Kronos, but in 2018, the support for the US dollar was added.
BTCC - Purpose Bitcoin ETF
On February 19, 2021, the BTCC was launched in Canada. It became the first North American ETF. For the first week, the invested amount reached around $ 500 million, which is a great result, given its Canadian roots.
BTCC charges a 1% commission. There are 3 different tickers variations of BTCC on the Toronto Exchange:
BTCC.U - paired with the US dollar;
BTCC.B - paired with the Canadian dollar;
BTCC is a foreign currency hedging version.
To purchase BTCC, investors need to have Canadian dollars in their account, and US dollars are used as insurance against risks.
The EBIT launch happened a day after BTCC. It also used the Toronto Stock Exchange. In order to compete directly with BTCC, the service was forced to set commission fees no more than 0.75% during the first week. Another negative point - the size of the capital equity of EBIT is only 10% of the equity size of the competitor.
On EBIT, investors can only control fluctuations in the price of Bitcoin in USD. It gives them the opportunity to take advantage of the redemption and issuance processes based on the structure of exchange-traded funds. Investors are the direct owners of the Bitcoins stored in the cold wallet.
The sub-custodian of EBIT Bitcoin is Gemini Trust Company, LLC.
BTCX - CI Galaxy Bitcoin ETF
Is the third Bitcoin ETF, which was launched on the Toronto Stock Exchange. Just like the ETF described above, it is offering access to BTC, which are held in cold wallets. Commission - 0.4%.
It is natural for short-term traders to give preference to high liquidity EBIT and BTCC. However, it is more profitable for a long-term holder to get commission savings from BTCX.
The possibility of launching Bitcoin ETF in the USA
In early May of this year, the investment company SkyBridge Capital, led by Anthony Scarammuchi, filed an application to the SEC to establish the Bitcoin ETF crypto fund. The regulator started the review process for this application on May 28, 2021, and was supposed to give a response within 45 days.
Later, the SEC issued a statement, according to which the deadline for the decision was postponed. The new decision date is set for August 25, 2021. In the regulator's opinion, there is a need to consult with a significant number of specialists.
However, many experts foresee another postponement. So far, the American regulator has rejected all previously submitted applications for the launch of the Bitcoin-ETF. Applications from ARK Invest, One River, VanEck, and Fidelity are currently pending.
According to Timothy Massad, who previously headed the CFTC (Commodity Futures Trading Commission), no entity should expect the legalization of Bitcoin ETFs in America in the near future. If such a product is launched, it will accelerate the institutional adoption of the virtual currency, despite the fact that the regulator is unable to control the situation on the crypto market. It is the main reason for the rejection of crypto FTFs by regulators in the United States.
Alexander Zyl, who leads the Cryptonisation project, doubts that the launch of such an instrument as ETF in the US will have a major impact on the crypto asset market. As an argument, he pointed out that when the Bitcoin ETF was launched in Canada in February of this year, it did not affect the market in any way. Especially it did not prevent the price of Bitcoin shrinking from $ 57-58 thousand to $ 44 thousand and then to $ 30 thousand.
Expected impact on the market
The director of the financial company E.M. FINANCE, Evgeny Marchenko, sees the launch of the Bitcoin ETF as a positive impact. After all, no one will deny the fact that there are many investors with a healthy risk appetite for virtual currencies. For those investors, the lack of safety of the asset and its volatility does not matter, since they are driven by the greed and expectation of the huge profits associated with speculative risk.
At the same time, this group of investors is not happy with the regulatory mechanisms employed in trading. In addition, they question the security that regulators "supposedly provide" when using crypto wallets and crypto exchanges. Therefore, Bitcoin-ETF is an ideal instrument for those market participants, since the provider is responsible for the issues related to the safety of assets.
As a consequence, if Bitcoin-ETF is launched on the US stock market (which is the largest in the world), we should expect an active injection of the capital into virtual currencies. And this will contribute to an increase in the value of an asset and a decrease in its volatility.
Tatyana Maksimenko, who is the official representative of the Garantex cryptocurrency exchange, agrees with this opinion. The acceptance and launch of a financial instrument will serve as a reminder for the entire market of the emergence of the new class of assets, which cannot be ignored.
This will result in a sharp rise in the price of Bitcoin, and will also serve as a catalyst for the development of cryptocurrency technologies and the integration of crypto assets into traditional financial services. Bitcoin-ETF is destined to turn BTC into the mainstream of the financial world, Maksimenko said.
However, she agrees that it is not worth holding your breath, expecting the launch of the Bitcoin ETF this year. Most likely this will happen in 2-3 years. Although the world of cryptocurrencies is so unpredictable that anything can happen.
Several versions of the Bitcoin ETF have already been launched in different countries. But the most anticipated event by institutional investors, as well as by the crypto community is the introduction of this instrument into the US stock. It will provide a tremendous opportunity for the crypto asset industry and will have a huge impact on traditional markets.