A bitcoin spot exchange-traded fund could unlock $8 billion in value for investors if the SEC approves Grayscale’s bid to convert GBTC to an ETF.
The Bitcoin ecosystem tends to be a very sensitive space with decisions, news, regulations and announcements by big financial institutions, governments and business magnates making the marketplace susceptible to wild fluctuations in price.
A price boom that could storm the bitcoin market with a great impact on investors is a bitcoin spot exchange-traded fund (ETF) proposal. This ETF filing is quite promising considering its prospective influence being envisaged. As stakeholders and crypto enthusiasts are seeking a headway in getting approval from the U.S. Securities and Exchange Commission (SEC).
A Bitcoin ETF enables retail and average investors to access or invest in bitcoin without directly possessing the asset.
In response to increasing demands for bitcoin by investors, bitcoin ETFs are designed to enable people to trade bitcoin like they would with stocks. Since bitcoin has become popular and the price is scaling over tens of thousands of dollars, affording one bitcoin isn’t easy for an average investor. Hence, a bitcoin funds-holding company would offer a bitcoin ETF on an exchange for investors to trade.
In trading a bitcoin futures ETF, a contract is offered to exchange bitcoin for a particular asset at a predetermined price and date agreed upon between two parties. So whether bitcoin increases or decreases in price, the trade will be carried out at the predetermined price during which the contract was made.
However, the difference between a futures ETF and a spot ETF is to offer an exchange at the actual price of bitcoin at the time of purchase/sale, by using a real-time price of bitcoin to trade and exchange contracts as opposed to that of a future price.
Recently, there has been some headway with a spot ETF approval because the SEC approved Teucrium’s future ETF under similar conditions as the basis for Grayscale’s proposal:
They would be able to regulate all forms of transactions that are carried out via this protocol. Once it’s stored on a secured command within their jurisdiction, they would be able to prevent illegal transactions and reduce risks associated with the spot ETF by having strict security.
What happens once a spot ETF gets approved?
A Grayscale Bitcoin Trust conversion into a New York Stock Exchange-traded fund (NYSE) would be a major milestone. It would be an open door for broader adoption of the digital asset because investors and many regular folks will have access to bitcoin in a similar pattern to trading stocks.
Bitcoin spot ETFs will tolerate the non-bitcoin savvy. That is, with a bitcoin ETF, anyone can gain access to bitcoin without having to learn how it works, understanding a cryptocurrency exchange, and without having to deal with the risks of possessing bitcoin directly. Also, the bitcoin market has the potential to become much bigger with spot ETF approval and sentiment could become quite bullish.
This is a guest post by Joseph Ayomide. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.