Understanding the U.S. Spot Bitcoin ETF Just Approved by the SEC
TechFlow Selected TechFlow Selected
Understanding the U.S. Spot Bitcoin ETF Just Approved by the SEC
Bitcoin followers still believe that the spot Bitcoin ETF will attract tens of billions of dollars in new investments, as financial advisors and other institutional investors will use the traditional ETF vehicle familiar to the financial community.
Navigating Web3 tides with focused insightsAuthor: Bu Shuqing
Source: Wall Street Insights
After a decade of delays and twists, the U.S. Securities and Exchange Commission (SEC) has finally made concessions to the market. On Wednesday local time, the SEC approved spot Bitcoin ETFs for the first time in history, authorizing 11 ETFs to begin trading on Thursday.
However, SEC Chair Gary Gensler stated that this approval does not equate to regulatory endorsement of Bitcoin, calling it a "speculative, volatile asset." Both Gensler and his predecessor Jay Clayton had previously rejected allowing such products to launch.
Despite this, Bitcoin supporters believe that because financial advisors and other institutional investors will use the familiar traditional tool of ETFs, spot Bitcoin ETFs could attract tens of billions of dollars in new investment. For retail investors, spot Bitcoin ETFs can make investing in Bitcoin easier, cheaper, and safer in certain aspects.
To this end, Wall Street Insights has compiled key questions investors should understand before purchasing Bitcoin ETFs.
What is the difference between spot Bitcoin ETFs and futures-based Bitcoin ETFs?
Futures-based Bitcoin ETFs preceded spot ETFs. On December 18, 2017, CME Group, one of the world's largest futures exchanges, launched Bitcoin futures contracts.
According to an earlier report by Guosheng Securities, the underlying assets of futures-based Bitcoin ETFs are Bitcoin futures contracts. The core difference between futures-based and spot Bitcoin ETFs lies in their underlying assets. In terms of price volatility, both types of ETFs are very similar, aiming to precisely track BTC prices and provide investors with exposure to BTC. Typically, futures-based ETFs carry higher fees due to the added complexity of managing futures contracts.
Therefore, the market has long expected the U.S. SEC to swiftly approve spot Bitcoin ETFs.
When will spot Bitcoin ETFs be listed?
The listing process for U.S. ETFs consists of two steps. First, the SEC authorizes exchanges such as the New York Stock Exchange and Nasdaq to list ETF shares, followed by approving the prospectuses submitted by issuers. Once these approvals are complete, most ETFs can begin trading.
According to the SEC, the agency has fast-tracked the approval of spot Bitcoin ETFs, which will start trading on Thursday local time.
What are the fees for spot Bitcoin ETFs?
Currently, around a dozen issuers are launching spot Bitcoin ETFs, leading to intense competition on pricing.
Among them, Bitwise Asset Management offers the lowest fee, charging an annual expense ratio of 0.2%.
ARK Invest, led by Cathie Wood, in partnership with crypto product issuer 21Shares, will charge a 0.21% fee, while funds from VanEck and BlackRock will also charge 0.21%. Fidelity Investments will charge a 0.25% fee.
Additionally, some issuers including Bitwise, ARK/21Shares, and Invesco plan to fully waive fees on the first $1 billion to $5 billion in assets under management for the first six months.
According to media reports, the most expensive fund currently is Grayscale Bitcoin Trust, which is already trading but plans to convert into an ETF. Currently sized at $27 billion, the trust charges a 2% fee. In a filing, Grayscale stated that once converted to an ETF, the fund will charge a 1.5% annual fee.
All funds may adjust their fees before or after launch, with some issuers even lowering fees in filings prior to initial launch.
Compared to holding Bitcoin directly, what are the advantages of holding Bitcoin ETFs?
Primarily cost and convenience.
For small investors buying Bitcoin directly, transaction fees and spreads on many platforms can sometimes exceed 1% of the purchase amount. Since many platforms—including Robinhood Markets and Fidelity—offer zero-commission trading, buying Bitcoin ETFs is significantly cheaper.
Moreover, investing in ETFs is more convenient than opening dedicated accounts on platforms like Coinbase just to buy Bitcoin. Investors can manage Bitcoin alongside other assets within the same account. They also no longer need to worry about losing passwords or having cryptocurrency exchange accounts hacked, reducing potential asset losses.
Bitcoin ETFs can also be held in investors’ retirement accounts, avoiding capital gains taxes associated with direct Bitcoin ownership. However, this also means that even if Bitcoin prices fall, taxes owed on holdings within retirement accounts do not decrease accordingly.
In short, holding Bitcoin in specialized cryptocurrency trading accounts carries significant risks, deterring many institutional investors and financial advisors from investing directly in Bitcoin. Now, with fund providers launching Bitcoin ETFs, investors can hold Bitcoin through traditional stock accounts. Fund managers bet this approach could attract tens of billions of dollars in new capital, further driving growth and development in the Bitcoin market.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
