The Bitcoin Spot ETF – The Good and The Bad

A Historical Moment for the Crypto World

At this point you’ve even seen the news coverage and mainstream media stating  that The Securities and Exchange Commission (SEC) approved 11 Bitcoin Spot ETFs. This was after multiple rejections starting with the Winklevoss twins in 2013 with the first application to the SEC.

While this does show institutional support for Bitcoin, there are some things to really pay attention to now that the ETF is approved.

So what is a Bitcoin Spot ETF?

Well we’ve already talked about ETFs before so this is kind of like one of those. The difference is it is not a bucket of multiple companies but one asset (Bitcoin). The Exchange Traded Fund purchases Bitcoin from other holders and exchanges, then holds them on their digital wallet. The goal is to mirror the Bitcoin price in the market. The ETF then issues shares in the company corresponding to the set number of Bitcoin it holds. The ETF also rebalances its holding by buying or selling its tokens.

This Spot ETF is different from the Bitcoin ETFs that have been on the market before because it is designed to mimic the price and not use any type of derivatives trading (futures contracts or what the price will be). A derivatives based ETF (which was on the market before) is even more risky than Bitcoin (in my opinion) because the value of the ETF is derived indirectly from futures pricing meaning other variables outside of the Bitcoin price.

So essentially the Bitcoin Spot ETFs give direct exposure to Bitcoin and make it incredibly simple to do so.

The Good and The Bad

The price of Bitcoin jumped and took a lot of the alt coins like XRP and ETH along with it on day 1 of trading. A few days later it settled back in while some alt coins like ETH held their ground. This seemed like a ‘sell a little of news’ event, but really was just moving cash around in the crypto space. We also have to keep in mind that the halving is coming this year so this is technically a bull cycle currently.

The Good:

– The overwhelming positive outlook here is that institutional money can now flow into Bitcoin. It was before, but not at this magnitude. This also allows more retail investors to get into Bitcoin without owning a Trezor or getting onto Coinbase.

– This could potentially lead to more stable prices due to the improved liquidity.

– Lower risk way to get into cryptocurrency (Bitcoin specifically) by purchasing through your everyday brokerage which could increase adoption and ultimately the price. This also could provide further market validation proving Bitcoin is LEGIT.

– Some actual regulatory clarity on a crypto product. Since it’s an ETF there are rules that must be followed to ‘protect’ investors.

The Bad:

– The people who didn’t want access and what Bitcoin was created for (separating money from the state) now have access and at the end of the day could potentially manipulate price.

– ETF holders only benefit from the exposure to it’s price. They can’t actually send the money anywhere meaning transaction fees could take a hit which would impact the greater Bitcoin ecosystem.

– Expensive management fees are now part of the ETF ecosystem from 0.2% to 1.2%.

– A retail investor doesn’t actually own their Bitcoin.

It’s a toss up

I think regarding price action and in a year halving this is a pretty solid thing to happen within the crypto space. For the long term, I’m not entirely sure. Based on the ecosystem arguments some have made, there is a chance that this could hurt the group that mines the blocks for Bitcoin rewards potentially increasing the time to the next halving. That’s extreme, but still an example that gets to live rent free in my head.

Only time will tell right now as will the big halving coming up here shortly. All I know is that I’ll be hanging on to my crypto in my Trezor wallet and will sell when I hit my price targets. Ignore the FUD and stick to your metrics.

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