Key Insights
- There are two types of Bitcoin ETFs: futures-based and spot-based.
- Futures-based Bitcoin ETFs are already available, but many crypto enthusiasts and experts believe that spot-based ones are superior.
- The SEC has not yet approved a spot-based BTC ETF, but many are eagerly awaiting its approval.
- Some analysts believe that a spot-based BTC ETF could have negative consequences for the BTC ecosystem.
Bitcoin, the flagship cryptocurrency, has been attracting a lot of attention from investors since day one.
For more than a decade of BTC’s existence, investors have benefited from the cryptocurrency’s high returns and inflation resistance.
Enter ETFs or exchange-traded funds.
Think of ETFs as investment products that allow people to invest in BTC without actually facing any of the underlying risks.
There are currently several BTC ETF applications on the SEC’s desk, and some industry experts have speculated that BTC might rally to about $150,000 if one of them gets approved.
However, there are also several other risks that no one is talking about.
What exactly can go wrong if these applications become approved? Let’s find out.
Spot Versus Futures Bitcoin ETFs
When it comes to BTC ETFs, there are two different types: futures-based and spot-based.
A futures-based BTC ETF invests in contracts that promise to deliver BTC at a specified date and price in the future.
A futures-based BTC ETF does not actually own any Bitcoins, but rather bets on their future price movements. And as it turns out, there are already several BTC futures ETFs available.
A spot-based BTC ETF, on the other hand, invests directly in BTC. This means that a spot ETF mirrors the price of BTC in the crypto market as closely as possible, allowing investors to buy them, instead of the actual coins.
The SEC’s Pending Approval
As we mentioned earlier, the SEC has only approved futures-based Bitcoin ETFs.
Some examples include the ProShares Bitcoin Strategy ETF (BITO) and the Valkyrie Bitcoin Strategy ETF (BTF).
For context, the BITO was the fastest ETF ever to reach $1 billion in assets under management (or AUM).
However, many crypto enthusiasts and experts believe that futures-based BTC ETFs are inferior to spot-based ones, as they suffer from several drawbacks.
In all, while many crypto fans are eagerly awaiting the approval of a spot-based BTC ETF in the U.S., some analysts warn that such a development could also have negative consequences for the Bitcoin ecosystem.
Things Could Go Very Wrong – Or Very Right
According to a recent report from CryptoQuant, a BTC ETF will have major institutional investors like Grayscale, Blackrock, Valkyrie and 21 Shares flood the blockchain space with cash.
These massive inflows will cause the prices of BTC and several other cryptocurrencies to skyrocket.
The report also states that CryptoQuant expects BTC’s market cap to reach $900 if an ETF gets approved.
For context, Bitcoin’s market cap currently stands at $550 billion, according to CoinMarketCap data.
However, other analysts have cited potential problems that may arise from new Bitcoin ETFs being approved.
Hayden Hughes, co-founder of social-trading platform Alpha Impact in a Bloomberg interview, mentioned that the approval of a BTC ETF has already been factored in.
This means that we are unlikely to see any massive gains on approval.
Further Problems On Approval?
Aside from a potentially absent rally on ETF approval, other analysts have also cited problems like increased regulation and scrutiny of BTC.
BTC ETFs would undoubtedly bring more regulation and oversight to the crypto market.
This is because agencies like the SEC will now be fully involved in BTC (and most other chains) activities, and will continue to go after individuals and companies with its endless lawsuits.
Furthermore, for these institutional investors to successfully track Bitcoin, they would have to hold massive amounts of the cryptocurrency’s supply.
In essence, there will be less BTC and more buyers.
In short, BTC, being the most decentralized and secure blockchain on the market, will become largely centralized, less secure, and therefore open to several kinds of attacks.
Overall
The crypto community continues to wait for a spot-based BTC ETF approval.
However, it is important to understand that this is a highly controversial product that could have significant implications for the Bitcoin market.
While it may offer many benefits to investors who want to access BTC simply and safely, it could also pose many challenges and risks to the BTC ecosystem.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.
