In early 2024, the cryptocurrency industry celebrated one of its biggest victories in a long time: the approval of the first spot Bitcoin exchange-traded fund (ETF) in the United States. On January 10, 2024, the U.S. Securities and Exchange Commission (SEC) said yes after years of a hard no, approving 11 applicants to offer spot Bitcoin ETFs in the country. This comes nearly three years after a similar decision in neighbouring Canada. <\/p>\n\n\n\n
A spot Bitcoin ETF is an investment vehicle that allows everyday\ninvestors to gain exposure to Bitcoin through their regular brokerage accounts.\nThis means they are not involved in the complexities of buying and storing the\nasset, but they are exposed to its price fluctuations. <\/p>\n\n\n\n
Instead, the ETF buys Bitcoin directly from the market and holds\nit, usually using multiple layers of security, including cold storage, to avoid\nhacking. The ETF then invites investors to buy shares based on the number of\nbitcoins it holds. The share price directly corresponds to the price of Bitcoin\nat the time. Shares can be traded on traditional stock exchanges, allowing\neveryone to participate in the crypto markets.<\/p>\n\n\n\n
Spot Bitcoin ETFs are not to be confused with Bitcoin futures\nETFs. While spot ETFs hold BTC as their underlying asset, futures ETFs\nreplicate its price using futures contracts.<\/p>\n\n\n\n
Investors prefer spot ETFs to futures ETFs as they offer\nexposure to Bitcoin without the need for storage. They are more straightforward.\n<\/p>\n\n\n\n
Each share in a spot Bitcoin ETF represents a specific number of\nbitcoins held. Bitcoin futures ETFs, on the other hand, indirectly track\nBitcoin’s price via derivatives whose value can be influenced by market factors\nother than BTC\u2019s spot price.<\/p>\n\n\n\n
The SEC approved bitcoin futures ETFs in the United States in\n2021.<\/p>\n\n\n\n
The journey to a spot Bitcoin ETF in the United States began in\n2013 when the Winklevoss twins filed their first application with the SEC amid\na growing crypto market. <\/p>\n\n\n\n
Despite making numerous changes to their application in 2016,\nthe Winklevoss twins were denied approval by the SEC in 2017, citing an\nimmature Bitcoin market. Grayscale, which had also applied to convert its\nBitcoin trust into a spot ETF in 2016, withdrew, blaming an undeveloped\nregulatory environment. <\/p>\n\n\n\n
In 2018, the SEC turned down the Winklevoss twins’ second\napplication, claiming that crypto exchanges lacked the necessary controls to\nprevent manipulation.<\/p>\n\n\n\n
Three years later (2021), Canada approved its first spot Bitcoin\nETF. The US SEC also approved the first Bitcoin futures ETF under Gary Gensler\nas the new Chair. The year also saw Grayscale reapply to convert its trust into\na spot Bitcoin ETF.<\/p>\n\n\n\n
The SEC rejected the reapplication in 2022, along with fresh\napplications from SkyBridge, Fidelity, and Bitwise. This prompted Grayscale to\nsue the SEC. <\/p>\n\n\n\n
Cathie Woods’ ARK Investments joined the race in May 2023,\nfiling its application and giving the SEC 240 days to approve or reject it.\nHowever, the idea gained traction when financial giant BlackRock applied in\nJune. BlackRock\u2019s application triggered a Bitcoin rally, bringing the price of\nBTC to a one-year high. It also attracted other issuers, including Fidelity,\nFranklin Templeton, and Invesco. <\/p>\n\n\n\n
Grayscale won its lawsuit against the SEC in August 2023, after\na Washington, D.C. appeals judge ruled that the SEC did not justify the\nrejection. In the same month, Europe saw its first spot Bitcoin ETF.<\/p>\n\n\n\n
With a tough loss in court and mounting pressure from over ten\nnew applications, it was only a matter of time. Over the next few months, the\nSEC and the applicants worked together to iron out the details. <\/p>\n\n\n\n
Finally, on January 10, 2024, the SEC approved eleven spot\nBitcoin ETF applications from:<\/p>\n\n\n\n
Bitcoin’s price reaction to the ETF approval was somewhat\nsurprising. While many expected an immediate jump, BTC fell from nearly $49,000\nto below $40,000 in less than two weeks. However, the “sell the news”\nnarrative faded, sending Bitcoin back above $50,000 for the first time since\n2021 and to a new cycle high of $52,814. <\/p>\n\n\n\n
While the price of Bitcoin fell in those first few days, ETFs\ngrew at an incredible rate. Trading volume exceeded $1.74 billion in the first\nhour, $4.5 billion on the first day, and $10 billion by the third day.\nGrayscale Bitcoin Trust (GBTC) handled most of this volume, with up to $2\nbillion traded daily during the first two days. <\/p>\n\n\n\n
GBTC experienced massive outflows in the early days, totalling approximately $6 billion in the first few weeks. This came from profit-takers who bought the fund before it was listed as an ETF. The outflows were also driven by investors looking for lower fees, as GBTC charges higher fees than all other ETFs. <\/p>\n\n\n\n
In just one month, spot Bitcoin ETFs have accumulated over $11\nbillion in Bitcoin, demonstrating investor enthusiasm. BlackRock’s IBIT and\nFidelity’s FBTC are the market leaders, with combined holdings of about $10\nbillion. In addition, spot Bitcoin ETFs account for approximately 3% of the\ncurrent Bitcoin supply.<\/p>\n\n\n\n
Analysts say the full impact of spot Bitcoin ETFs has yet to be\nfelt. Current net inflows necessitate the purchase of thousands of bitcoins per\nday, far exceeding the 900 new coins mined. This gap is expected to widen in\nMay when the Bitcoin halving event reduces mined coins to 450 per day.<\/p>\n\n\n\n