ETFs also known as exchange-traded funds, are baskets of securities that are traded on the stock market.
The basket can contain stocks, bonds, real estates, or commodities.
The Bitcoin ETF is traded on stock exchanges, and holds bitcoin as its primary asset, unlike futures ETFs that rely on future bitcoin contracts.
At the same time, the spot ETFs directly track the price of bitcoin, offering investors exposure to its price movements without owning the asset directly.
It is more like buying shares in a company that owns and manages those assets. Here, the ETF would contain Bitcoin and investors could get exposure to the lead cryptocurrency directly from their brokerage account.
The first cryptocurrency – Bitcoin – operates on a decentralised blockchain, offering secure and transparent transactions independent of central banks.
President at The ETF Store, Nate Geraci, indicated that the US Securities and Exchange Commission (SEC) might soon approve these ETFs, with minor amendments requested and a potential Commissioner vote.
The US Securities and Exchange Commission itself has until January 10 to take action on at least one of those applications, and crypto insiders have speculated the regulator will use that date to announce a slew of decisions at once.
There are two technical requirements that must be fulfilled before a spot-backed Bitcoin ETF can start trading.
Firstly, the SEC must sign off on so-called 19b-4 filings by the exchanges that would list the ETFs. Second, the regulator must approve the relevant S-1 forms, which are the registration applications from the would-be issuers, a list that includes BlackRock and Fidelity.
Experts believe that the introduction of a bitcoin spot ETF is likely to significantly impact bitcoin’s price due to increased accessibility and liquidity.
This increased demand, coupled with bitcoin’s finite supply, will likely drive prices up. A spot ETF would enable investors to gain exposure to bitcoin’s price movements through an approved investment vehicle, appealing to a broader range of investors.
Some suggest a more moderate impact on bitcoin’s price. On an average, the range of predictions range between USD42,000 and USD100,000 following approval.
The approval of a spot ETF is expected to increase the demand for Bitcoin which will eventually lead to a supply squeeze.
Predictions are also high that while some long-term bitcoin holders might sell when prices are high, while many hold on to their bitcoin regardless of market fluctuations.