What are spot-bitcoin ETFs and why are they driving bitcoin prices upward? An explainer
Spot-bitcoin ETF refers to a financial vehicle approved by the US markets regulator, SEC, to invest directly in bitcoins rather than via derivatives. The move, if approved, would widen this cryptocurrency’s reach and popularity among investors.
The US market regulator Securities and Exchange Commission (SEC) giving its nod to spot-bitcoin ETFs is a highly anticipated event that has kept bitcoin traders and investors on the edge for quite some time now – at least since October 2023.
Although there is no fixed timeline of this event, it is likely to take place in January 2024.
What is spot-bitcoin ETF?
Spot-bitcoin ETF refers to an exchange traded fund permitted by the SEC to invest directly in bitcoins rather than in its futures. In the past 10 years, SEC has rejected every application seeking approval for spot ETF but if speculations are to be believed, the markets regulator is likely to give a green signal to one of the proposals as early as January 2024.
This would enable investors to get direct exposure to bitcoin through their brokerage accounts, and not through derivative contracts.
Unlike a futures-based ETF, a spot ETF would own actual bitcoins. This would lead to higher liquidity and greater stability of crypto prices.
Impact of approval
The move, if approved, would most likely widen this cryptocurrency’s reach and popularity among investors. According to a Reuters report, if SEC approves one of these spot ETF applications, there could be an inflow of $3 billion in just one day and as much as $55 billion in the next five years.
In a note to clients, Standard Chartered said there are expectations of anywhere between $50 and $100 billion of inflows into bitcoin ETFs in 2024, CoinDesk reported.
The bitcoin prices have rallied over 60 percent since October on expectations that SEC will greenlight one or more spot ETFs in early 2024.
The spot ETFs are likely to cause mass adoption, which will boost cryptocurrency's overall market valuation.
The past 24 hours
There are expectations that once spot-bitcoin ETF is given a green signal, the regulator might approve ether ETF as well. This speculation led ‘ether’ to surge by 5 percent in the past 24 hours, trading around $2,400 a unit.
During the same time, bitcoin went down by 2.2 percent after a series of fake tweets from the SEC’s hacked ‘X’ handle sent a ripple in the world of cryptocurrencies.
Meanwhile, traders are seeking protection from a potential price drop in bitcoin prices as the ETF deadline looms closer, crypto options exchange Deribit's chief commercial officer Luuk Strijers was quoted in CoinDesk as saying.
This is because some investors are speculating delay in SEC granting approval to spot-bitcoin ETFs.
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First Published:10 Jan 2024, 07:42 PM IST
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