Table of Contents
- Why the Approval Matters
- Implications For Australian Investors
- Frequently Asked Questions (FAQs)
The US Securities and Exchange Commission (SEC) has approved the first-ever spot Bitcoin exchange-traded fund (ETF) in a monumental decision that will have widespread implications for local BTC bulls and investors.
In total, 11 pending applications for Bitcoin ETFs were approved for trade on major US exchanges. Among the approved applicants was BlackRock, the world’s largest asset manager with over $US9 trillion worth of assets under management.
Crucially, this decision marks a turning point in Bitcoin’s trajectory as a legitimate investment, allowing a wider range of investors to engage with the cryptocurrency market in the more familiar, accessible and regulated vehicle of an ETF.
Unlike the direct ownership of Bitcoin, which involves technical challenges such as managing wallets and cryptographic keys, investing in ETFs offers a more conventional and straightforward way to gain exposure to Bitcoin’s market movements.
While Australian investors have had access to physically backed Bitcoin ETFs since May 2022—via the 21shares Bitcoin ETF (EBTC) listed on Cboe Australia—the SEC’s nod to Bitcoin ETFs in the US is particularly noteworthy due to the influence this will have on US and global financial markets.
Related: Investing In Cryptocurrency In 2024
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Why the Approval Matters
ETFs embed Bitcoin within the mainstream financial system by wrapping it in a familiar package and allowing investors to buy it through their regular stock broker, online trading account or fund.
A key aspect of ‘spot’ Bitcoin ETFs is their direct correlation to Bitcoin’s actual market price, which is achieved through a one-to-one backing of Bitcoin to ETF shares. This type of ETF is in contrast to futures-based funds that are tied to contracts predicting Bitcoin’s future price, often leading to price discrepancies and, more notably, not driving trade volume to the Bitcoin asset itself. These futures ETFs were approved in the US in October 2021.
The approval of ‘spot’ Bitcoin ETFs not only means a more straightforward and potentially less-risky avenue for exposure to Bitcoin’s price movements, but it will also potentially drive an increase in demand for Bitcoin itself, as the funds acquire BTC holdings to provide backing to their ETF shares.
Leading up to the ETF approval deadline, investors have speculated that the approval would significantly increase demand for Bitcoin, potentially driving up the price. Since BlackRock’s initial Bitcoin ETF application in June 2023, BTC grew almost 90% to a two-year high of $US49,000 just before the decision last week, reflecting the confidence that the ETF would eventually be approved.
Despite the asset’s recent surge, it’s important to note that its current value is still below its peak of over $US69,000 in 2021, reflecting the BTC’s inherent volatility.
Related: Our Pick Of The Best ETFs For Australians In 2024
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Implications For Australian Investors
The SEC’s approval of Bitcoin ETFs have significant implications for the Australian financial market. Many Australian investors can already invest in the new 11 ETFs, with trading platform Nabtrade already providing access and CommSec reportedly not far behind.
It is also anticipated that similar products will be made available on the Australian Securities Exchange (ASX). The ASX, Australia’s largest and most influential exchange, is critical in shaping investment trends and opportunities for domestic investors. Brisbane-based Monochrome Asset Management is set to launch a spot Bitcoin ETF on the ASX this year, and the SEC’s recent decision could fast-track the approval of their application. If approved, it marks a significant step in aligning Australia with the global trend of integrating cryptocurrencies into the traditional financial system.
The developments in the US and the potential introduction of a Bitcoin ETF on the ASX signify a turning point for investors in Australia and worldwide. This shift offers new investment opportunities and indicates a growing alignment of Australia’s financial market with global trends, acknowledging the rising prominence of cryptocurrencies as a legitimate, mainstream investment asset.
Nevertheless, the risks of crypto are not wholly eliminated by the SEC’s approval and the use of less-volatile ETFs as an investment vehicle. As investment house Morningstar points out, over the past five years, Bitcoin’s standard deviation or dispersion of returns is nearly four times that of the US stock market.
While much of Bitcoin’s recent volatility has been in the upward direction, this is not always the case. Past successes do not guarantee future returns—especially when it comes to cryptocurrency.
Related: Top 10 Cryptocurrencies To Invest In For Australians
This article is not an endorsem*nt of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency or CFDs as an investment class. Cryptocurrency is unregulated in Australia and your capital is at risk. Trading in contracts for difference (CFDs) is riskier than conventional share trading, not suitable for the majority of investors, and includes the potential for partial or total loss of capital. You should always consider whether you can afford to lose your money before deciding to trade in CFDs or cryptocurrency, and seek advice from an authorised financial advisor.
Frequently Asked Questions (FAQs)
Which ETF is best for Bitcoin?
With the recent approval of 11 tradable spot Bitcoin ETFs, investors have plenty of choice. These funds, managed by Bitwise, Grayscale, Hashdex, BlackRock, Valkyrie, BZX, Invesco, VanEck, WisdomTree, Fidelity, and Franklin Templeton, offer a familiar framework for investing in Bitcoin.
Each fund has unique characteristics, so it’s essential to research and compare these funds, considering factors like management fees, fund performance, and Bitcoin custodian to find the fund that suits you best. As with any investment, it’s advisable to consult with a financial advisor to determine which ETF aligns best with your investment objectives.
Is a Bitcoin ETF a good idea?
Investing in a Bitcoin ETF can be a good idea for those seeking exposure to Bitcoin’s price movements without the complexities of direct cryptocurrency ownership. Bitcoin ETFs offer a more regulated and mainstream investment avenue, making them appealing to a wider range of investors.
However, like any investment, Bitcoin ETFs carry risks. The value of these funds is directly tied to the often volatile price of Bitcoin. Therefore, it’s essential for potential investors to consider their risk tolerance and investment horizon and to be aware of the speculative nature of Bitcoin as an asset class.
What are the 11 Bitcoin ETFs?
The 11 tradable spot Bitcoin ETFs recently approved include funds from Bitwise, Grayscale, Hashdex, BlackRock, Valkyrie, BZX, Invesco, VanEck, WisdomTree, Fidelity, and Franklin Templeton. Each of these ETFs offers investors different ways to gain exposure to Bitcoin, with varying characteristics and fee structures. This range allows investors to choose a fund that aligns with their specific investment goals and risk tolerance.
Why is BTC falling?
Bitcoin’s price movements, including the recent drop from a two-year high of almost$US49,000 to just below $US43,000, can often be attributed to market dynamics like ‘sell the news’ events. This phenomenon occurs when the price of an asset rises in anticipation of a specific event, such as the approval of Bitcoin ETFs, and then falls after the event occurs as investors take profits.
Additionally, Bitcoin’s market is known for its volatility, influenced by various factors, including regulatory news, macroeconomic trends, and investor sentiment. It’s important for investors to understand that price fluctuations are a characteristic feature of the Bitcoin market and to approach their investment strategies accordingly.
Can Australian investors invest in 'spot' Bitcoin ETFs?
Yes, they can. While the SEC has approved 11 ‘spot’ Bitcoin ETFs for US investors, Australian investors with access to US markets can also gain exposure. Furthermore, there are plans for local Bitcoin ETFs to launch on the ASX this year, most notably Monochrome Asset Management, which is hoping for approval in the first half of 2024.
As an expert in the field of cryptocurrency and financial markets, it's evident that the recent approval of the first-ever spot Bitcoin exchange-traded fund (ETF) by the US Securities and Exchange Commission (SEC) is a monumental decision with far-reaching implications. My depth of knowledge in this domain allows me to dissect the key concepts mentioned in the provided article.
1. Why the Approval Matters:
- The approval of spot Bitcoin ETFs is significant as it embeds Bitcoin within the mainstream financial system, providing a familiar investment vehicle for a broader range of investors.
- Spot Bitcoin ETFs have a direct correlation to Bitcoin's actual market price, achieved through a one-to-one backing of Bitcoin to ETF shares. This contrasts with futures-based funds tied to contracts predicting future Bitcoin prices.
2. Implications For Australian Investors:
- The SEC's approval has implications for the Australian financial market, where investors can now access the 11 approved ETFs. Platforms like Nabtrade are already providing access, with others, like CommSec, expected to follow suit.
- The Australian Securities Exchange (ASX) is anticipated to introduce similar products, aligning Australia with the global trend of integrating cryptocurrencies into the traditional financial system.
- The approval could fast-track the launch of a spot Bitcoin ETF on the ASX by Monochrome Asset Management, further aligning Australia with global cryptocurrency investment trends.
3. Risks and Considerations:
- Despite the SEC's approval, risks associated with cryptocurrency investments are not entirely eliminated. Bitcoin's volatility, as indicated by its standard deviation, remains a concern.
- Past successes in Bitcoin's price do not guarantee future returns, emphasizing the need for investors to exercise caution and consider their risk tolerance.
4. Frequently Asked Questions:
-
Which ETF is best for Bitcoin?
- Investors now have a choice among 11 spot Bitcoin ETFs managed by various entities like Bitwise, Grayscale, BlackRock, and others. Researching factors such as management fees and fund performance is crucial to finding the most suitable option.
-
Is a Bitcoin ETF a good idea?
- Investing in a Bitcoin ETF provides exposure to Bitcoin's price movements without the complexities of direct ownership. However, potential investors should be aware of the risks associated with the volatile nature of Bitcoin as an asset class.
-
What are the 11 Bitcoin ETFs?
- The 11 recently approved spot Bitcoin ETFs include funds managed by Bitwise, Grayscale, Hashdex, BlackRock, Valkyrie, BZX, Invesco, VanEck, WisdomTree, Fidelity, and Franklin Templeton.
-
Why is BTC falling?
- Bitcoin's price movements, including recent fluctuations, can be attributed to market dynamics such as 'sell the news' events and the inherent volatility of the Bitcoin market influenced by regulatory news, macroeconomic trends, and investor sentiment.
-
Can Australian investors invest in 'spot' Bitcoin ETFs?
- Yes, Australian investors with access to US markets can invest in the approved 'spot' Bitcoin ETFs. Additionally, there are plans for local Bitcoin ETFs to launch on the ASX, with Monochrome Asset Management seeking approval in the first half of 2024.
