Bitcoin prices have been soaring amid reports that a spot bitcoin ETF (exchange-traded fund) could soon hit the market.
The price of the largest cryptocurrency by market value traded near the $35,000 mark overnight on October 23 – its highest level since May 2022 – after Bloomberg ETF analyst Eric Balchunas posted on X, the social media platform formerly known as Twitter, that asset management firm BlackRock (BLK) had listed its iShares Bitcoin Trust under the ticker IBCT with the Depository Trust & Clearing Corporation (DTCC). This sparked excitement that the Securities and Exchange Commission (SEC) is on the cusp of approving the first spot bitcoin ETF.
“Bitcoin has stormed higher again … on the back of more ETF chat,” says Craig Erlam, senior market analyst at OANDA. “There’s clearly a lot of excitement about the prospect of a bitcoin spot ETF, as is evident by such a surge on speculation of something that was already expected to eventually get over the line.”
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However, subsequent reports indicated that the listing for the iShares Bitcoin Trust had been removed from the DTCC website, which put a temporary halt in the cryptocurrency’s notable rally.
Still, the price of Bitcoin is up more than 30% since late August when a federal appeals court in Washington D.C. overturned the SEC’s attempt to block Grayscale Investments’ application for a spot bitcoin ETF. Judge Neomi Rao said the SEC’s decision to approve two bitcoin future ETFs but reject the application for the spot market fund was “arbitrary and capricious.”
The order did not “convert the Grayscale Bitcoin Trust product into an ETF immediately, but gives a fair basis for Grayscale to be treated in line with other Bitcoin ETF applicants,” says Gautam Chhugani, senior analyst of Global Digital Assets at Bernstein.
The SEC recently declined to appeal that ruling. Paul Grewal, chief financial officer of cryptocurrency exchange operator Coinbase Global (COIN), feels that the U.S. is making progress in taking steps to approve bitcoin ETFs, even if that progress is slow. “We think that other ETFs are going to be coming online soon enough as the SEC follows the law and is required to apply the law in a neutral way to the applications that are pending,” Grewal told CNBC.
What’s the difference between a spot vs futures ETF?
In 2021, cryptocurrency traders scored a win when the SEC approved the ProShares Bitcoin Strategy ETF (BITO) – the first crypto ETF on the market that was not tied to stocks. The fund was so popular it accumulated more than $1 billion in assets under management by its second day.
There are plenty of other Bitcoin and crypto ETFs on the market, but none that are tied to a digital asset’s spot price – or the where it is trading at right now so that it can be bought for immediate delivery. This differs from futures prices, which are where the cryptocurrency is expected to be trading in the future. Futures traders buy contracts that lock in this price for a delivery of the asset at a later date.
The SEC has so far rejected approving a spot bitcoin ETF, citing risks such as market manipulation and fraud.
However, a spot bitcoin ETF could drive demand by investment advisers and wealth and private banking integrated products, as well as provide easier access to ETFs in direct broker accounts, Chhugani says. The analyst thinks total managed crypto assets will reach $500 billion to $600 billion over the next five years, up from the current $45 billion to $50 billion.
Should I buy a bitcoin ETF?
Cryptocurrencies remain highly speculative and should be approached with extreme caution. For market participants interested in dipping their toes into the crypto space, it is crucial that they do their research and only use money they can afford to lose.
One benefit of buying exchange-traded funds is that they spread risk across a basket of assets. However, when it comes to crypto ETFs, this is likely more true for funds that are made up of stocks vs those that are tied to futures or spot prices of a digital currency.
