What is a Bitcoin ETF?
A Bitcoin exchange-traded fund (ETF) is a fund that essentially tracks the price of Bitcoin. Once the U.S. SEC approves an ETF provider, shares of a spot Bitcoin ETF will be listed on traditional stock exchanges such as the New York Stock Exchange (NYSE).
It should be clarified that Bitcoin ETFs are mainly divided into two categories: spot ETFs and futures ETFs. In the United States, the first Bitcoin futures ETF was approved by the SEC in October 2021. Although the United States has not yet approved a spot Bitcoin ETF, this type of Bitcoin ETF has received a lot of attention.
To date, 14 major authorized participants (APs) have applied for spot Bitcoin ETFs. These organizations manage a total of more than $14 trillion in assets.
How does a spot Bitcoin ETF work?
Spot Bitcoin ETFs use physical Bitcoin as the underlying asset to track the real-time price of Bitcoin. Authorized Participants (APs), usually large financial institutions, play a vital role in the operation of ETFs. They can create or redeem ETF shares in large blocks called creation units by delivering or receiving an equivalent value of Bitcoin.
This creation and redemption process helps keep the ETF’s market price close to Bitcoin’s spot price.
If the ETF is trading at a premium, the AP can create new shares and sell them at a higher market price, buying Bitcoin at the spot price for delivery to the ETF. Conversely, if the ETF is trading at a discount, the AP can redeem shares, receive Bitcoin from the ETF, and sell them at a higher market price.
What Does Spot Bitcoin ETF Approval Mean for the Crypto Industry?
The approval of the first Bitcoin ETF is a highly anticipated event. The current bullish price of Bitcoin is largely influenced by the high probability of the ETF application being approved. The interest of large institutions in buying Bitcoin has caused several factors that are currently affecting the cryptocurrency market.
Tightening regulations
The approval could trigger an increase in regulation, leading to tighter oversight within the crypto industry. Authorities may aim to establish a stricter framework to address potential issues.
As cryptocurrency becomes more regulated, it strays away from its path as an alternative to traditional finance.
Spot Ethereum ETF
Following the application for a Bitcoin ETF, global hedge funds have now applied for an Ethereum ETF. Ethereum is the second largest cryptocurrency after Bitcoin in terms of market capitalization and trading volume.
The end of 2023 looks more promising for the crypto industry than the beginning of the year. The upcoming Bitcoin halving could coincide with the approval of a spot Bitcoin ETF, which could lead to further growth in the crypto industry and the start of the next bull cycle.
The upcoming approval of a spot Bitcoin ETF has significant implications for the crypto industry. It could lead to increased demand and higher market prices, but it could also lead to stricter regulation.
Despite the obstacles and economic challenges, the industry expects positive changes by the end of 2023. The combination of Bitcoin halving and the approval of a spot Bitcoin ETF has the potential to trigger a new bull run
